I distinguish here between ideas and signals because they are two distinctly different types of approaches generated by two distinctly different understandings of the futures markets.Later on I will provide a very thorough discussion of the two approaches, outlining their strengths,assets, liabilities, differences and methods of implementation. For now, suffice it to say that a decision will need to be made, preferably sooner than later, about the approach you wish to employ in your trading.
Some individuals may seek to implement a hybrid approach, incorporating what they feel are the best aspects of each technique. I also will discuss the merits of this approach, or the lack thereof.
How Much Risk do You Want to Take on Each Trade?
A significant question, one that is perhaps best answered prior to the start of trading is, “how much do you want to risk on each trade?” Many factors enter into this decision, and there are many different
opinions regarding the best answer.On opposite ends of the continuum, we find the two most extreme approaches.
Those who belong to the “money management school” will tell you that the best approach to take is a per-trade risk based strictly on money management. In other words, you decide ahead the maximum
risk you want to take, in dollars. When a trade goes against you by the predetermined amount, you
close it out.On the other end of the spectrum is the “systems approach.” Proponents of this approach claim that each trade is unique. Every trade has specific levels of support and resistance and, therefore, it is not
possible to determine a prior rule for dollar risk.
My approach to this aspect of futures trading is essentially similar to my approach in other areas. I prefer not to be in the middle of the road. Rather, I would align myself with either of the extremes.As you continue to read this course, you will understand more clearly why my preference is usually to be found on one end of the spectrum or the other, but rarely in the middle.
It’s been said that you can walk on the left side of the road or the right side of the road, but if you walk in the middle of the road you will get squashed. There are merits to each approach and there is no right or wrong answer to the question. There is, however, an answer that is your answer. My job is to help you find it.
Hopefully, by the time you have finished this course, you will have found the answer falling naturally into place. For the time being, however, I will tell you that each approach has its strong and weak points and you can be successful by following either of the extremes.