Trading risk management: Trade setups, fear, and decision-making in futures trading

Trading risk management is a crucial component of any trading plan for the successful day trader. In the recent webinar “Risk Management Disciplines for Futures Trading” from Affordable Indicators, Joel Wyse provided his personal trading plan as an example:

• Trading hours: Enjoy the flexibility of futures trading by setting hours that work for you.
• Markets allowed: What markets do you choose to participate in?
• Maximum trades: Don’t overtrade. Set a max number of trades so you can be more particular in your decision-making.
• Contracts allowed: Don’t overcomplicate with multiple targets. Go all in or all out with risk/reward to keep it simple and only trade on one contract.
• Language: Drown out the outside voices to keep your emotions in check when trading.
• Mindset: Keep it positive.

The last two aspects of Wyse’s trading plan are the two biggest keys to risk management success for any futures trader: Don’t let your emotions rule you and maintain a positive mindset.

In his presentation, Wyse asked the following questions, which were met with resounding yeses from attendees:

• “Would your day trading results improve if you had strict risk management rules in place for each trade?”
• “Do you struggle with trade exit decisions, such as determining the best target and stop loss prices?”
• “Have you ever second guessed yourself when making decisions about trade entries or trade exits?”

Yes, yes, and yes.

Trading risk management in three steps

Risk management is the most important aspect of futures trading, Wyse suggests, with three key points:

• Trade setups: The market is random and always changing. Probabilities are hard to define, with thousands of possibilities via indicators and logic. Remember that past performance does not predict the future.
• Fear: Execute trade setups without fear. There is predefined risk and reward with every trade and only two possible outcomes: win or lose.
• Decision making: Decrease stress by minimizing the number of decisions in your day trading and avoiding overtrading.

View the full webinar for more details on trading risk management.

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