Ingredients For a Thought Out Trend Following Plan
I speak all the time that one needs a specific plan. It is not as complicated as it seems. The complicated part, is following it during the ugly draw downs or long periods in which nothing happens. One needs discipline and patience. This is an acquired attribute. I personally learned it by realizing that money is made over long periods of time. That any trade does not mean anything nor does any month. It all boils down to commitment and passion. I catch myself and say “what will my account look like in 10 years or 15 years”. Even though past performance is not indicative of future performance I am willing to take that shot once again for another 17 years. I love waking up early in the morning and seeing what occurred in the overnight markets. Some times( actually many times) I have positions go against me. This is what trend following really is. Most trades do not work….but once in a while, some trades do work and when they work…they can work out very nicely and make up for all of those that don’t.
The components of a plan start with these questions you need to ask yourself:
1. How do you identify the markets to buy or sell at any specific time?
2. How much of any particular market do you buy or sell at any specific time?
3. What is the signal to buy or sell a market?
4. How do you know when should get out of a losing trade and take your loss and vice versa..When do you exit a winning trade?
No one can answer these questions but you..unless you allocate to a commodity trading adviser. If you decide to allocate to a commodity trading adviser these are questions you need to ask. Clearly there are many more questions such as risk management and money management but as Rome was not built in a day nor should your trading plan. Mine is based on Richard Donchian which has been around since the 1940s; however I added risk filters over the years to “Try” to mitigate some of the draw downs. There is no magic system nor magic manager. It is all about managing the risk with a well thought out plan & even with this plan, there is no guarantee for profit.
Trading futures and options involves substantial risk of loss no matter who is managing your money and is not suitable for all investors. Past performance is not indicative of future results
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