Lesson 15: Don't be in a hurry
One of the most important rules of success in futures and options
trading is the rule that you should not be in a hurry to make a lot
of money in this investment activity. I would estimate that 90% of
the time a trader makes an investment in a futures or options
contract, he or she is sorry that the investment was made within ten
days time. Sometimes the investor is sorry at the end of a single
day. Yet, if an investor is given a fresh $5000 to trade with, they
start looking for a trade to make "tomorrow on the open".
There is simply no reason to be in a hurry in this game except for
the fact that you may need the money now. If you do need profits
"now", you probably won't make them. If you need profits
tomorrow in order to pay Monday's rent, you will still probably not
make them. If, however, you develop a successful trading
program and learn how to relax and take the profits when they come,
you have a pretty good chance of being successful.
It is quite easy to calculate the 'odds' for most futures and options
positions you take. I outline how to do this in the books that I have
written, especially in my Commodity Trading Manual, and most
of you are familiar with my books so I won't repeat here what I have
already written about in my manual. One very simple way of
calculating the odds of cash wheat advancing after you have purchased
a futures contract is simply to locate a yearbook that gives annual
cash wheat prices month by month. Examine that yearbook to see how
many times cash wheat prices move up during the period of time that
you plan to own your futures contract or options position and how
many times cash wheat prices move down.
If you buy wheat futures in August and plan to hold until December,
compare the average cash price in August with the average cash price
in December and you can calculate the "odds" of cash wheat
advancing during the period that you plan to hold your long futures
contract or options position. If the "odds" are not in your
favor, then there will have to be another compelling reason for you
to take a long position - and there may well be another compelling
reason - such as crop damage due to drought, an increase in exports,
a commitment of traders report which supports a long futures position
or an options call contract.
Always remember that one of the general rules of success for you
should be to understand that you can always lose your money
tomorrow, don't be in a hurry to lose it today. Look at your
"odds" of success before you take any futures
or options position and do not take those positions unless or until
the odds are in your favor or only take one if there is a compelling
reason for you to do so. Playing cash and futures odds is not just
something you do now and then; it is a fundamental principle of
successful futures and options trading. I have been writing about
"odds" since I first published my earliest edition of the Commodity
Trading Manual and if you have not read that book, I recommend
it to you. It can be ordered by clicking here.
Think of it this way: If you wanted to go swimming in warm water,
would you simply go outside and jump off the bridge into the river
and "hope" that the water was warm, or would you take a
look at a calendar to see if it is August or December. If you want to
swim in warm water, check the calendar first. If you want to succeed
in futures and options trading, don't be in a hurry to take a
position before you understand whether the cash price of the product
whose futures or option contract you are trading normally advances or
declines during the period of time that you plan to hold your futures
contract or your options position.
To repeat, there is no need to be in a hurry in this investment activity.
I would estimate that 90% of the time a trader makes an investment
in a futures or options contract, he or she is sorry that the
investment was made within ten days time. Sometimes the investor is
sorry at the end of a single day. Yet, if an investor is given a
fresh $5000 to trade with, they start looking for a trade to make
"tomorrow on the open".
There is simply no reason to be in a hurry in this game except for
the fact that you may need the money now. If you do need profits
"now", you probably won't make them. If you need profits
tomorrow in order to pay Monday's rent, you will probably not make
them. If, however, you develop a successful trading program and
you learn how to relax and take the profits when they come, you have
a pretty good chance of being successful.
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