Good Afternoon Traders,

I was all set to throw up some lyrics to the tune of Auld Lang Syne, and then chat about how the year has come to an end and we have 3 whole days to think about the coming year. And you go and ask about futures! Jeff is going to kill me! We're going from "Options Addict" to "Futures Fanatic" (yes, I just reserved the name)!

To be perfectly honest, I fell into it. It wasn't something I sought out. I'm a technical trader. I love price patterns, Fibonacci lines, and I use a few mechanical indicators to tell me when to get in and out. I've spent the last 18 months trying different systems, different approaches and different underlyings. It took me that long to discover a set of rules that I could trust with my money. As it happens, it was my networking that moved me to futures. At every meeting over the last year, one of the members of the user group would present a system to the rest of us. “Rich” made a presentation one day about his system which used futures and peaked my interest.

Frankly, the underlying doesn't matter. It could be a stock, an index or a futures contract. Hasn’t Jeff said over and over that the patterns are the same in any time frame? That if you look for flag patterns on a 1 year chart, they are just as valid on a 15 minute chart? The key is the rules you are using to get you in and out of the trade. What is your system? Have you got a system that you trust 100%? Does your plan tell you when you can and can't trade? That's the place to start. Make sure you have a trading plan and a system that you are willing to bet the house on.

If your system works, it shouldn't matter what you're trading, but until you have rules that you trust completely, I'd recommend staying away from futures.
Here is a part of my trading plan for my futures trading. I have different plans/rules for my other types of trades.

1. Follow the rules.
2. Use one time frame to trade.
3. One market.
4. Trend & Anticipatory B pivot trades only.
5. One contract.
6. Draw risk/reward on charts before entering a trade.
7. Only use bracket (OTO) orders when entering a trade.
8. Record on charts thoughts while in trade, or immediately afterwards.
9. No trading if tired, sick, hung over, or rushed.
10. Spend 15 minutes before trading with focusing exercises.

My rules for each trade are specific. Simple rules for entry and exit, and not many of them. A couple of them are as follows:

1. Enter trade when crossover of moving averages occurs at mid-band. R/R = 1:3 min.
2. Set stop 2 ticks above/below last pivot high/low.
3. Divergence must not be present.
4. Enter on right side of crossovers.
5. 1st target outer-bands or resistance/support.

I have been paper trading the system for 5 months. Literally, 5 months of 7+ hours of trading a day to make sure my system worked. My rules have proven consistent. If I break them, I lose. Period. Are your rules that clear? Now that it’s been announced that the markets will be closed on Tuesday, you have 4 days to get your rules written, and your plan figured out. If you have time, post your goals for 2007 in the comments section. If they are written they are more likely to be realized.

Thank you for tuning in this week while Jeff was away. It was a pleasure to help him, and keep the blog going. I wish you all the very best in the coming year.

Many happy (profitable) returns!

lisa

Posted by Option Addict on 12/29/2006 at 12:27 PM | Permalink