First, the three elements of a successful transaction
Any successful futures trading model must consider the following three important factors: price forecast, timing and fund management.
1. Price forecast refers to the trend direction of our expected future market. This is a crucial first step in the process of market decision-making. By forecasting, traders decide whether to be bullish or bearish, thus answering our basic question: should we enter the market with bulls or bears? If the price forecast is wrong, then the following work will not work.
2. Trading strategy, or timing, to determine the specific entry point and exit point. In futures trading, timing is also crucial. Because futures trading has the characteristics of low margin requirement (high leverage ratio), we don't have much room for manoeuvre to save mistakes. Although we have correctly judged the direction of the market, we may still suffer losses if we choose the wrong time to enter the market. In essence, the issue of timing is almost entirely technical. Therefore, even basic analytical traders still need technical tools at the moment of determining the specific entry and exit points.
3. Fund management refers to the allocation of funds. These include the design of portfolio, diversified arrangements, how much funds should be allocated to invest or take risks in various markets, the balance of return-risk ratio, what measures should be taken after the success stage or the setback stage, and whether to choose a conservative and steady trading model or a bold and positive model.
The above three elements can be summarized in the simplest language: the price forecast tells the trader how to do it (buy or sell), the timing helps him decide when to do it, and the fund management decides how much to trade. The problem of price forecast has been discussed in previous chapters. We mainly deal with the latter two aspects here. Let's talk about fund management first, because this issue must also be taken into account when formulating appropriate trading strategies.
Second, the fund management
In the futures industry, people are everywhere, clamoring for customers to tell what to buy and sell, when to buy and sell, and so on. But few people tell us how much capital should be injected into each transaction.
In order to be in an invincible position for a long time, fund management is the most important part and indispensable. The problem solved by fund management is related to the life and death of futures market traders. It tells traders how to control their money. As a successful trader, he who laughs last laughs best. Fund management only increases the chances of traders' survival, which is the final chance of winning.
Third, some basic points of fund management.
We must admit that the problem of portfolio management may be very complicated and can only be clarified through complicated statistical methods. Here we only intend to discuss this problem at a relatively simple level. Below we have listed some general essentials that may be helpful for you to allocate funds and decide the amount of funds to be injected into each transaction.
1. The total investment must be limited to 50% of the total capital. The balance can be invested in short-term government bonds. In other words, at any time, traders should not invest more than half of the total funds in the market. The remaining half is a reserve fund to ensure that when the transaction is not smooth or temporarily used, it will be prepared. For example, if the total account amount is 100000 yuan, only 50000 yuan can be used for trading.
The maximum total loss of each transaction must be limited to 5% of the total capital. This 5% refers to the biggest loss that the dealer will bear if the transaction fails. This is an extremely important starting point when we decide how many contracts we should trade and to what extent we should set up stop-loss orders. Therefore, with an account of 100000 yuan, the amount that a single market can take risks does not exceed 5000 yuan.
The above essentials are quite common in the futures industry, but we can also modify them according to the specific needs of various traders. Some traders are more aggressive and tend to hold large positions. Some traders are conservative and steady. What we want to emphasize here is that we must take appropriate diversified investment forms, plan ahead, prevent the arrival of the loss stage and protect valuable capital.
Fourth, decide the position size.
Once traders make up their minds to open positions in a certain market and choose the right time to enter the market, it is time to decide how many contracts to buy and sell. We use the 20% rule here, that is, the total capital (such as 100000 yuan) multiplied by 10% to get the total amount that can be injected in each transaction. In the above example, 20% of 100000 is 20000 yuan. We assume that the margin requirement for each soybean contract is 1 1,000 yuan. Then 10000 yuan divided by 1000 yuan: 20, that is, traders can hold positions of 20 soybean contracts. Friends, please remember that the above items are only necessities. In some cases, we need to make some changes. It's the same here The most important thing is not to get too involved in any market, so as not to lose money one after another and cause great disaster.
Verb (abbreviation for verb) diversification and concentration of investment
Although diversification is a way to limit risks, it may be too diversified. If traders spread their trading funds in too many markets at the same time, a few gains will be offset by a large number of losses. There is also a 50-50 chance problem here, so we must find a suitable balance point. Some successful traders concentrate their funds in a few markets, and they are successful as long as the trends in these markets are good at that time. Between the two extremes of excessive dispersion and excessive concentration, we are in a dilemma, and there is no absolute solution. The point is "irrelevant". The smaller the correlation between the markets we choose, the more we can achieve the effect of diversification.