How to trade in Futures and Options, Derivative Trading profitably

By | October 12, 2012

Don’t let anyone ever tell you that trading in Nifty,Stocks Commodity or Forex future game is easy. It is one of the most diffcut business to be in, As per Stats out of 100% 90% traders looses money in futures trading, 5% be at breakeven and only 5% are the one who make astrnomical sums of money. I’ve been speculating in futures for 10 years, and it took me most of that time before I had any degree of success.  I attribute successful futures trading to following certain steps.

Step 1: Have a Plan

I’ve never seen someone build a house without detailed drawings, and I bet you haven’t either. To build a house, you need a plan. The same holds true for speculating in the futures market. Your opponent, the market, has a plan – to take all your money – so you need one, too.

There are 3 major pieces to a good plan.

  • Have a profit target in % term ie. You want to earn 10% on your capital same as FD which you do with a bank you have a target after maturity i will earn so much.
  • Your Drawdown the capcity to take loss.
  • Finally, know what you’ll risk to reach your goals. Are you willing to spend a year learning, or lose thousands of dollars before you start winning? Better to find that out now, upfront, before you invest the time and effort.

Step 2: Find a Strategy

Finding a viable strategy is the most difficult part of developing a trading system. You might not think that’s true, based on ads and infomercials you see, which show you how easy picking a strategy is. Alas, if it were only as easy as going to a free seminar in a hotel or visiting a website! In reality, finding a good strategy involves 3 main areas: skill assessment, research and detailed development.

The first part of determining how to reach your plan is to do an accurate, honest skill assessment. Done correctly, this will point you in the right direction. If you don’t do this assessment, you’ll be doomed to wander the “land of the losers.”

The second component of your strategy is research. Before you settle in on a strategy, you need to see what is out there, what is working today, etc. Keep your mind open, and you’ll soon find something that you like, and that has potential.

Finally, it’s time to get your hands dirty by doing detailed development. Whether you create a system yourself, or sign up with a service or an advisor, the key is to perform “due diligence.” Make sure you learn all you can, before you put real money on the line.

Step 3: Check and Double Check

Remember when you were in school and the teacher always said “check your work?” If you were like me, you thought checking it was something you didn’t need. Well, if you avoid checking your work before trading a strategy, you can easily fall into trouble.

Depending on the route you choose, there are many ways to double check your work. It might be as simple as checking your strategy code for math errors, or asking an advisor to back up claims with brokerage statements, or simply asking for references. Remember, it is your money, so take the time to thoroughly check everything out.

Step 4: Execute Your Strategy

At this point, you are ready to pull the trigger, and trade your strategy with real money. The key here is to plan your trade, and trade your plan. Simply put, once you develop a method or select an advisor, stick with it, without deviation, for at least three to six months. Anything less, and random chance could make a good strategy look bad. Give a strategy time to show its long term potential.

Step 5: Monitor and Adjust as Necessary

Once you start trading, it is essential that you monitor your results. One way is by keeping a trading log. Recording the details of trades, along with your thoughts and feelings, can be very helpful when you review your system performance. This log is especially powerful when you violate your system, as you likely will at some point. Reviewing why you violated your system may help you refine your signals to more closely match your psychology. The key here is to keep close tabs on your trading – otherwise, it can quickly get out of control.

Conclusion

So there you have it – the five steps to trading that I have used in my own trading. Don’t be surprised if it takes a year or more to move through the steps. My advice is to not rush through them. I obviously can’t guarantee that you’ll have favorable results, but I can tell you the steps work, and work well.

6 thoughts on “How to trade in Futures and Options, Derivative Trading profitably

  1. Bramesh Post author

    Thanks a lot Vipul. I wish you the best and you have the caliber for being a consistent profitable trader.

    RGds,
    Bramesh

  2. Rohit

    Hello Bramesh,

    Is there a good website where i can monitor an options portfolio (Similar to moneycontrol which allows me to monitor my stock portfolio). I want to try out a few F & O trades with simulation before i jump with actual cash.

    Thanks
    Rohit

  3. ramen

    dear sir
    i learn trading system trough net..if u have any option tell m e soon throgh net..thanks
    Ramen

  4. Sanjay

    Hi Bramesh,

    Thanks for the article.
    I fully agree with what Vips said and added my comment just to second his views.
    This was the same case with me and thankfully corrected myself after your valued guidence.

    thanks once again for your ever ready valued support.

    Regards
    Sanjay

  5. Vips

    I agree with this . I am also learning to trade now. First few months of trading went fantastic for me. Daily earning 4-5k by using your trading system and following what you taught me. But suddenly, due to over confidence and trying to apply many indicators for my trades, I started loosing. The biggest factor to win in markets (for newbies) is only three things (after getting hard knocks)
    1. Trading system to execute trades
    2. Trading Journal (which I stop making due to over confidence)
    3. Control over emotions with discipline ( again learned this after holding many loosing positions)

    I must say, follow these three thinsg which Bramesh teaches and I guarente you success in life (it takes a lot of time and its not easy).

    Thanks you Bramesh for sharing your thoughts with us. It helpmed me , as a trader and your die hard follower, to keep my emotions in check

    Wish you a nice weekend

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