This article on having a futures trading plan is the opinion of Optimus Futures.
You need a futures trading plan for 2022…yes YOU.
A recent survey of traders yielded some interesting figures:
- 97% of traders believe that psychology plays an important role in trading.
- 96% of traders believe emotions can negatively affect your trading decisions.
- 91% are able to recognize when emotions like fear, greed, anger, overconfidence, and lacking confidence impact your performance.
But…Only 34% have a system in place to manage those emotions.
As 2021 draws to a close, it’s time to look forward to 2022.
Each of us needs to take inventory of our performance, acknowledging what we did right and wrong while identifying opportunities and risks.
Then, we need to craft plans that incorporate this analysis and turn to the future.
In this article, we’re going to walk you through what we believe to be the most important components to creating a futures trading plan for 2022.
Assess this year’s performance
To start the review process, we need to step back and look at the big picture of 2021.
Your profit and loss statement is the ultimate arbiter of your success.
Take a look at your account balance at the start and end of the year and see how much you gained or lost.
At the same time, you want to build the narrative of what occurred throughout the year.
- Did I stick with my original plan?
- Were emotions a big part of my decisions?
- Where and when did I make any changes?
- Average profit/loss per trade
- Average time in a trade
- Average trade size
- Number of trades per day
If you don’t have a trading journal, we recommend you put that on your to-do list for next year.
Now, compare your performance to the goals you set.
One of the most fascinating things traders discover is how they often underperform the lofty expectations they started the year with.
Newer traders commonly shrug off a mechanical approach that yields consistent but limited gains in favor of larger swings only to discover they would have performed better had they stuck with their original plan.
Over time, this urge begins to subside and you’ll find yourself better at sticking with your plans.
Set new goals and objectives
As you look back at the year and begin to strategize for the next, create broad goals that you can refine into objectives.
Goals are what you want to achieve. Objectives are how you get there.
For example. I have a goal of turning a profit. Therefore, my objective is to generate $5,000 profit a month with an allowable range of +/- $500 using strategy XYZ.
Each objective should be measurable, specific, and directly related to your goal.
That’s why “I want to earn $50,000 this year trading” is an objective, not a goal.
Your goal is to turn a profit. Your objective would be how you plan to make this happen – the actions.
Now, you can’t just leave it at “I want to make money.”
Your goals need to move you forward as a trader and trading as a business.
Here are some examples:
- Create more consistency
- Make better decisions
- Stress less about trading
- Improve my profitability
- Learn new trading techniques
If you’re new to futures trading we recommend you read A Beginner’s Guide To Futures Trading to come up with ideas.
Create a regular performance review
Every year, millions sign up for gym memberships, resolving to become healthier in the new year.
By March, most of these people have given up.
Traders start each year with high hopes and expectations. Yet, they quickly get bogged down in the day-to-day and lose focus of their futures trading plan.
That’s why every trader needs to set up a regular performance review, just like a business.
Make each review focus on your goals and objectives by creating milestones to measure your progress.
These reviews don’t need to be extensive, but they do need to be structured. You should be able to easily measure your progress from one review to the next. That’s a lot easier when you perform the same tasks each time.
Analyze your trading strategy
Getting into the nitty-gritty, we look at the performance of our individual strategies.
To be fair to each one, we need to honestly answer whether we gave it a fair shake. Quite often, we jettison or deviate from our game plan and then blame the strategy. In reality, it was our fault.
Analyze trading strategies using the same criteria noted earlier such as average profit/loss per trade, number of trades per day, etc. Then, take these metrics and compare them to your goals.
You want your trading strategy to align with ‘what’ you want to achieve. And that’s more than just overall profitability.
For example. A strategy with a high win rate is more appropriate for someone seeking consistency even if it doesn’t lead to the highest total profits.
Next, we want to dig into the individual trades to see what led to our profits or losses.
Oftentimes, a few key trades make up most of our profits or losses for the year.
As we go through the line items, identify these outliers. We want to determine whether they occurred naturally as part of the strategy or from our own decision-making.
This is key to uncovering our risks and opportunities.
You would be surprised how much your overall performance can change by doing better on just a few trades.
To pick the right products, look at the margin requirements, liquidity, typical volatility, and contract specs. When selecting more than one product, make sure to calculate the correlation between the assets so that you don’t inadvertently create concentrated risk.
Discuss risk management
Along those lines, your annual futures trading plan must focus on risk management.
At the end of the day, once your account goes to zero, you’re done.
That’s why even the most lucrative trading strategy isn’t worth it if there is a high risk it obliterates your account.
Risk management boils down to two concepts.
Trade size – Trade size can be calculated as a percentage of capital, a set number of contracts, and a host of others.
You want to explore different methodologies to find the one that works best for your strategy.
Don’t be afraid to put two up against each other and let them compete for your favor. However, make sure that your trades are sized so that no one trade or series of bad trades can wipe out your account.
Entry and exit management – Some traders have one entry and one exit. Others scale into and out of trades. The right one for you depends on your goals and strategy.
Also, look at how well you adhere to your stops. It’s one of the most common account killers.
Disclaimers: The placement of contingent orders by such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders
Perform a tech audit to review if the tools you use are meeting your needs
As we discussed in our previous article, technology audits help traders optimize their performance.
This should come after you establish your goals and objectives as well as your strategy review.
Our technology needs to support what we want to achieve in the coming year and how.
A trader planning for high-frequency, fast execution needs a platform and data feed with as low a latency as possible.
Technical traders require a platform with the appropriate tools and indicators to aid their analysis while minimizing other distractions.
Just as important, you want to explore the technology that’s out there.
Footprint and volume profile methodologies are extraordinarily powerful. Yet, unlike Optimus Flow, many platforms don’t include them.
Your technology audit should not only assess what you need now but identify additional opportunities for you to expand.
Journal your trades for better accountability
We mentioned it before, but this deserves its own section because it’s that important.
Trade journals are a must if you want to improve over time. They hold you accountable, giving you an honest assessment of what’s really going on.
No other single tool can help a trader analyze their performance better.
Some traders use paper and pen. The most common method is a spreadsheet.
However, there are some amazing tools out there such as the automated journal available through Optimus Flow.
You want to collect enough information to analyze and measure your objectives at your regularly scheduled reviews.
At the most basic level, you need to include the transaction information such as time and date, trade size, entry and exit price, as well as symbol.
Beyond that, you can include qualitative information such as market notes.
Start trading futures in 2022
Futures offer an exciting world of opportunities.
Now that you know how to create your own futures trading plan, you can get started trading futures with Optimus Futures using our flagship Optimus Flow platform.
Disclaimer: There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
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