Trading_Guidelines - Trading Guidelines 1. Buy low and sell...

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Trading Guidelines 1. Buy low and sell high This may sound obvious, but since its the only way to earn trading profits, it bears repeating. Also, dont forget that in the futures markets you can d the reverse- sell high and buy low-just as easily. Bulls start their trades with a long (buy) position, while bears are initially short (sellers). For example, if you expected a rally in corn, you might enter the market with along position at $2.50 per bushel. Over the next two weeks, suppose corn moved up to $2.60. If you closed out your position at this price, you would realize a gain of $500 (10 cents x 5,000 bushels) per contract. On the other hand, you might be bearish on T-bond futures. Lets assume you shorted that market at 90-00. If prices then moved down to 89-00, you could buy back your position and make $1,000 (1 full point on a $100,000 face value bond) per contract traded. 2. Determine the right size for your trading account. The funds you put into a trading account should be completely discretionary. In other words, ask yourself if you can afford to lose whatever you invest in that account and possibly more. Savings for college, retirement, or emergencies should not be included. 3. Set definite risk parameters. Before you enter into a trade, determine how much of a loss you're willing to accept. You can express this as a dollar figure or as a percent of the margin amount. In either case, you should always keep some money in reserve. By setting limits up front, you'll lessen the risk of emotions dictating your decisions if the market happens to turn against you. Wishful thinking could easily drive you deeper into trouble, but hard and fast parameters are difficult to ignore. 4. Pick the right contract(s).
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This note was uploaded on 04/14/2010 for the course FINANCE fnce 305 taught by Professor Proftujun during the Spring '10 term at Singapore Management.

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Trading_Guidelines - Trading Guidelines 1. Buy low and sell...

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