Are you ready for Futures Trading

A new student of mine (very bright and young) pinged me today in the Chat Room with the great news that he made over ₹16,000 in the Tata Steel trade. I was, of course, very happy for him and then we moved back to trading.

Later, it struck me that he was operating with a relatively low trading capital and Tata Steel didn’t make a massive move that day, so I called him to understand what was going on. True to my suspicion, he had taken a massive position (4 Futures Lots) in Tata Steel which had worked out in his favour.

Although he had made money, the problem was that this trade was a clear deviation from the Trading Plan that he and I had charted for him and he had broken the very first rule of the plan: follow the “Position Sizing” template.

This is what separates a seasoned trader from a rookie- a seasoned trader wants to make money consistently whereas a rookie wants to hit the jackpot in every trade. Anyway, we realigned the understanding and I hope he sticks to the plan here onwards.

There is nothing wrong with trading in Futures- heck I do it every day- but just like a baby learns to crawl and walk first before running, a trader has to go through 4 stages before he/she can start trading in Futures.

Here is how we prescribe to go about the trading instruments (you can not skip any level (except maybe Level 3 can go in parallel with Level 2).

  • Level 1: Equity Cash (small positions)
  • Level 2: Equity Cash (regular positions)
  • Level 3:  Index Futures & Options
  • Level 4:  Equity Options
  • Level 5:  Equity Futures

Equity futures are probably the riskiest of all instruments. While NIFTY or BANKNIFTY would probably move 0.5% to 1% in a day, an Equity Future can move significantly higher/lower and hence increases the risk involved in the trade. I strongly advise any newcomer to not venture into Equity Futures until they have successfully gone through the first 4 levels. 

Another thing to remember is that carrying a futures position overnight is an absolute NO-NO for a trader who has been in the market for less than 2 years. People don’t understand the risk that overnight news poses – your whole account can be wiped out and you still probably would owe more to the broker.

Remember this: if ONE trade can kick you out of the market you are way off on your Risk Management and probably the good old greed is making you do it.

Get Rich Slowly or Get Poor Quickly- Your choice.

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Are you ready for Futures Trading

A new student of mine (very bright and young) pinged me today in the Chat Room with the great news that he made over ₹16,000 in the Tata Steel trade. I was, of course, very happy for him and then we moved back to trading.

Later, it struck me that he was operating with a relatively low trading capital and Tata Steel didn’t make a massive move that day, so I called him to understand what was going on. True to my suspicion, he had taken a massive position (4 Futures Lots) in Tata Steel which had worked out in his favour.

Although he had made money, the problem was that this trade was a clear deviation from the Trading Plan that he and I had charted for him and he had broken the very first rule of the plan: follow the “Position Sizing” template.

This is what separates a seasoned trader from a rookie- a seasoned trader wants to make money consistently whereas a rookie wants to hit the jackpot in every trade. Anyway, we realigned the understanding and I hope he sticks to the plan here onwards.

There is nothing wrong with trading in Futures- heck I do it every day- but just like a baby learns to crawl and walk first before running, a trader has to go through 4 stages before he/she can start trading in Futures.

Here is how we prescribe to go about the trading instruments (you can not skip any level (except maybe Level 3 can go in parallel with Level 2).

  • Level 1: Equity Cash (small positions)
  • Level 2: Equity Cash (regular positions)
  • Level 3:  Index Futures & Options
  • Level 4:  Equity Options
  • Level 5:  Equity Futures

Equity futures are probably the riskiest of all instruments. While NIFTY or BANKNIFTY would probably move 0.5% to 1% in a day, an Equity Future can move significantly higher/lower and hence increases the risk involved in the trade. I strongly advise any newcomer to not venture into Equity Futures until they have successfully gone through the first 4 levels. 

Another thing to remember is that carrying a futures position overnight is an absolute NO-NO for a trader who has been in the market for less than 2 years. People don’t understand the risk that overnight news poses – your whole account can be wiped out and you still probably would owe more to the broker.

Remember this: if ONE trade can kick you out of the market you are way off on your Risk Management and probably the good old greed is making you do it.

Get Rich Slowly or Get Poor Quickly- Your choice.

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Summary
Ready for Futures Trading?
Article Name
Ready for Futures Trading?
Description
Equity futures are probably the riskiest of all instruments. While NIFTY or BANKNIFTY would probably move .5%-1% in a day, an Equity Future can move significantly higher/lower and hence increases the risk involved in the trade.
Author
Publisher Name
VRDNation