The longer you’ve been in the e-mini trading game the more you’ve heard about how important money management is to profitable trading. Consistent profits aren’t just about following a good strategy or being able to read the charts properly. Profitable traders are also acutely aware of their money management techniques and have developed systems for ensuring that they aren’t over exposing themselves to the markets.
Leverage can be a tool and a threat in the e-mini markets. Novice traders often misunderstand how to put themselves in a position to benefit from the increases in leverage of the future markets vs. the traditional stock market environment. Over exposure to the market on small accounts can lead to fatal endings if other money management techniques aren’t in place. E-mini contracts tend to move very quickly and if you don’t have systems in place to ensure your safety you too may feel the negative effects of over exposure.
What are the ways a trader can make sure they aren’t over leveraging their capital in the market?
1. Conservative Sizing
Position size is often where novice traders get themselves into trouble. The day trading margin requirements for futures is extremely low and traders think that if they have the capability to trade large amount of contracts then they should. Nothing could be further from the truth. New traders should be trading as small as possible until they prove their competency in the instruments. Trading the e-mini markets requires a different approach than stocks and options and even veteran traders can make position size mistakes.
2. Stop Placement
Stops are crucial for day trading, especially in the e-mini markets where price action can produce violent price swings. Stops allow you to exit a position without actually entering a new order. If used properly they can add discipline to your entries as well as your exits. Stops allow you to focus on your trading rather than worrying about the worst case scenarios should something go wrong.
3. Risk Appetite
Know your limits before you enter a trade. Set a standard for every trade you take and stick to it. Knowing how much risk you can afford to take on board every time you enter a new position will keep you from holding onto a trade too long or over sizing your position. Risk tolerance is different for each trading style and account size so individuals should constantly monitor and update their risk tolerance levels if necessary. Doing so will keep you from letting one or two bad trades take you out of the game completely.
Knowing your limits will help keep you out of trouble. Position sizing, stop placement, and risk awareness are just a few things you can look at to get a feel for how in control you are of your trading future. Money management is what will set you apart from others in the market so make sure you know what you are doing before you get started.
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