We have attempted to give you a background in trading.  Overall I learned to trade from Dr. Alexander Elder’s Book and Workbook, “Trading for a Living” back in 1996.  I actually failed the tests in the workbooks several times before I got it right.  I still think that that book is a classic and in a class all by itself. 

A second principle I learned from Alex, is that trading is a triune skill of Mind, Money and Method.  It is the basis of our training program.  With the mental and money management the most important skills.  But like a three legged stool, if you cut off one leg, you can’t sit down.

In the Method area, which I will share with you one part of the method, you have three parts as well.  One of them is how to use Support and Resistance in your trading.  We use these daily Support and Resistance areas as targets.  Why do they work so well?  It is because other traders “Think They Work”.  Remember in your trading your job is not to think, but to observe what is happening right now.

Check out this short video on Support and Resistance  associated with Pivot Points and how we use it. 

The calculation for the new day are calculated from the High (H), low (L) and close (C) of the previous day.  Our recommended software calculates all of this automatically, however we use a trick to get a 24 hour Pivot and Support and Resistance Lines.  Here is the formula  used by floor traders.

Pivot point = P = (H + L + C)/3

First area of resistance = R1 = 2P – L
First area of support = S1 = 2P – H
Second area of resistance = R2 = (P -S1) + R1
Second area of support = S2 = P – (R2 – S1)  and so forth.

Now Support always becomes Resistance and Resistance becomes Support in the markets, so you have minor Support and Resistance in many places on your charts.  The trick is to know which on is the target, so as part of your money management, you should always select a level that offers at least a 3 to 1 win to loss potential..

There are many nuances to using Support and Resistance with other indicators, Fibonacci levels, Ema’s and other indicators.  However, once you master the skill of target shooting, you will be much more profitable.

For a detailed video of how our complete system work with all the indicators, please go to the Futures Trading Room

Economic comment and media hype direct and create commonly held views. Once a market believes in a commonly held view, it will eventually break sharply against that view. The size of the move in the opposite direction is a function of the level of disappointment in the coming reality. In other words, a gap forms between what public consensus expected to happen and what actually happens in reality.

By observing events, savvy futures traders can make money on the developing gap in two ways:

1. by patiently waiting as consensus builds, then acting as the break in consensus occurs, or
2. by aggressively searching for the contrary scenario that will precipitate the break.

As the public grows disenchanted with the inability of the consensus view to live up to expectations in reality, it will try to protect its investment by moving in an opposite direction. By acting at the point of greatest confusion — the point at which the market starts to turn but before it is in full retreat — can profit, often significantly. The stampede against the formerly held consensus creates a new trend which grows, building a new consensus about the correctness of this new path. Despite the stunned pronouncements of television commentators, who seem to be perpetually caught off guard, the cycle endlessly repeats, creating price points on which savvy futures traders can make money.

If you want to learn the skills you need to succeed as a futures trader, click the link for complete information on my Futures Secrets Trading System. Read testimonials from satisfied clients, now successful futures traders themselves. Click here for details on Futures Trading Secrets.

So here’s the question: If futures trading is so risky, why do I and so many others choose to take that risk? The answer is simple: Money. Trading commodity futures may be risky, but there is potential for enormous profit. Some of the world’s greatest fortunes have been built around commodities:

• Banking patriarch Mayer Rothschild amassed a fortune during the Napoleonic Wars by hoarding and distributing gold bullion to fund the British.
• John D. Rockefeller, Sr., in his day, the richest man in America, built his impressive fortune on oil, forever changing the global oil industry through creation of the Standard Oil Company.
• Self-made steel magnate Andrew Carnegie consolidated the American steel industry, founding the company that would eventually became behemoth U.S. Steel and in the process accumulating a fortune second only to Rockefeller’s.
• Abdel-Aziz Al-Saud, the first king of Saudi Arabia, created a nation and amassed unbelievable personal wealth through consolidation and control of crude oil and natural gas.
• Lakshmi Mittal, the Indian steel magnate, used his knowledge of the steel industry to become the fourth wealthiest person in the world in 2004.
• In 2005, legendary oil man T. Boone Pickens made a cool $1.4 billion betting on the price of oil and natural gas.

Most of us who trade commodity futures will never reach the storied peaks of the world’s legendary commodity kings, but there are plenty of commodity traders who have made a very nice pile through steady trading. There is plenty of “gold” to be found trading futures on the commodity markets. All you need to do to build your own fortune is to consistently make more than you lose.

With the right system, the right signals, the right tools, the right attitude and some patience and persistence, you can “win” as a futures trader. I’ve already done it and I can show you how. If you want to learn the skills you need to succeed as a futures trader, click the link for complete information on my Futures Secrets Trading System. Read testimonials from satisfied clients, now successful futures traders themselves. Click here for details on Futures Trading Secrets.

There are four basic stop loss methods:

Initial stop. The initial stop is your insurance policy against catastrophic loss. The initial stop is the pre-determined price point at which you will cut your losses and pull out of the trade. To be successful, a futures trader must have the discipline to immediately exit his position when the initial stop is triggered. There will be times when the market will rebound shortly after your exit; but far more often, your timely exit will prevent financial disaster.

Break-even stop. Break-even stops prevent you from losing more than your initial buy-in. Once your trade moves above your entry price, a break-even stop is placed at the entry point to prevent loss greater than the initial buy-in. Once you pass the break-even point, you start playing with the market’s money, not your own.

Trailing stop. Trailing stops keep your profits from slipping away. They allow you to ride a potentially profitable trade without risking your hard-earned profit. Trailing stops track the lows. As the market edges up and down in small steps, stops are placed just below each successive low. By riding the lows in a slowing rising market, you place yourself in a position to continually gain while maintaining an acceptably small level of risk.

Time stop. Time stops keep money flowing and prevent you from tying up your money in unprofitable trades. A time stop forces you to sell if a trade hasn’t reached its price objective within a set period of time, generally not more than one to two hours and usually less. Time is money. If a trade doesn’t produce, move on.

For more information on how to effectively use stop losses as a futures trader, click here to find out about my Futures Trading Secrets Course.

For most futures contracts traded on the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT), the following expiration and rollover practices apply:

• Contracts expire on the third Friday of each quarter: March, June, September and December. Contract expiration months are represented by the following letter assignments: March=H, June=M, September=U and December=Z
• Rollover is 8 days before expiration. For example, this month, December 2007, the rollover date is Thursday, December 13.
• Rollover is always on a Thursday. Generally, rollover will be on the second Thursday of the month; however, if the first day of the month begins on a Friday, rollover will be on the first Thursday of the month.
• Trading volume shifts to the new contract at market open on rollover day (9:30 a.m. EST).
• New day trading or swing trading positions opened on rollover day should utilize the new contract expiration month irrespective of when you plan to close your position.
• If opened within a few days of rollover day, new swing positions should be opened using the new contract.

Market myths and rumors abound as expiration and rollover dates come due. Savvy futures traders will always check the source, study their market indicators and confirm the probabilities of the rumor before acting.

For more information, 11 free trading lessons and a free ebook, visit Futures Trading Secrets.

What is the risk/reward ratio? The concept is fairly simple, though the execution is more complex. For each trade you compare the amount of risk to the potential amount of reward. In other words, what is the downside risk compared to the upside profit potential?

If the risk outweighs the potential profit, DON’T make the trade.
If the potential profit outweighs the risk, DO make the trade.

When futures traders are at work, they are constantly evaluating each tick of the market in terms of the risk/reward ratio. They are looking for trades that will give them the least risk while gaining the most profit. The risk/reward ratio can help a trader determine which of several possible trading actions will potentially be most profitable. The concept is fairly simple, so how hard can it be to execute? Much harder than you think!

Using the risk/reward ratio. The problem many futures traders have in utilizing the risk/reward ratio is that market movement and the actual risk or reward value of any trade can never be objectively or precisely pre-determined. No one can know what will actually happen in the future, whether that future be a minute from now, an hour from now, tomorrow or next week. A futures trader is limited to technical analysis and common sense. Based on previous market action and previous trading experience, he can predict what might happen, but the actuality must await the event.

Savvy futures traders watch technical support and resistance levels to help determine risk/reward ratios before entering a trading position. It is human nature to follow the pack, to buy on an upturn and sell on a downturn. Savvy traders have learned to watch the small changes in support and resistance levels to time their trades to minimize risk and maximize profit. Selling into a rally has greater potential profit than buying with the pack. If you sell into strength, you are guaranteed plenty of buyers eager to purchase what you’re selling. If you buy into a rally, the rally will eventually peter out and you’ll be caught chasing the trend downward, losing money at every tick. Smart traders have already taken their position before the market starts to run upwards. Even if you do not sell at the peak of the run, you will have made a profit. Novice traders often get greedy when they are in this position. It is possible to wait too long to sell and get caught when the market corrects and heads down again. Remember: You’ll never go broke making a profit, even a small one. Small profits add up.

Likewise, the time to buy is often when the market takes a small dip. Buy on a pullback to give yourself a better entry point and higher profit when the stock rallies again. Though it goes against the norm, often your best risk/reward ratio can be realized by doing the opposite of what the pack is doing.

What is an option on a future? An option gives the buyer the right but does not obligate him to buy or sell a particular futures contract at a set price at any time prior to a specific date. When the option is exercised, it is the actual futures contract that is delivered to settle the transaction, not cash.

How are options and futures different? While often confused, there are distinct differences between these two financial instruments. When purchasing an option, the buyer is purchasing the opportunity to buy or sell a futures contract by a certain date. To acquire the option, the buyer pays an up-front fee (called the premium). He can choose not to exercise his option and, therefore, accepts no risk. All risk resides with the writer of the option who is obligated to the sale or purchase if the buyer chooses to exercise his option. With futures, the contract binds both sides equally. Both buyer and seller share the risk and both make a good-faith deposit (called margin) to guarantee that they will meet their financial obligation. The buyer must buy and the seller must sell at the agreed price on the agreed date.

There are two types of futures options:

• Call options: The buyer of a call option buys the right but is not obligated to buy a particular futures contract at a set price at any time before the option expires.
• Put options: The buyer of a put option has the right but is not obligated to sell a particular futures contract at a set price at any time before the option expires.

In trading options on the futures market, futures traders need to be aware of and understand the relationships between:

• the futures contract and the commodity, security or index being traded and
• the relationship between the option and the futures contract.

It is this last point that makes trading in futures options both complicated and volatile. While there is tremendous potential for profit and risk is limited to the up-front cost, traders unfamiliar with options can quickly run amuck. Success is in large part dependent on the trader’s ability to accurately anticipate future price levels, a combination of experience, skill and feeling for the markets.

Mental stop loss. When you set a mental stop loss, you tell yourself, when the market reaches this price, I will sell.  Mental stop losses must be decided before you enter the actual position.  To minimize your loss, you determine your exit strategy before you start to trade. Now comes the hard part. When the market reaches your predetermined price, you must have the personal discipline to obey your mental stop loss and quickly cut your losses.

The benefit of using a mental stop loss over a physical one is that only you know that you are using a stop loss and what your stop price is. What other market players don’t know can’t hurt you. You don’t want to be forced out of position before you’re ready. But mental stop losses require extreme self discipline. You also have to watch the market continually so you know when to execute your stop loss. If you can’t force yourself to get out at your predetermined price, or if you are unable to track prices on your positions throughout the day, mental stop losses are useless to you.

Physical stop loss. A physical stop loss is a stop limit order you place with your broker. If the market reaches a specific price, your broker will sell automatically. There are two kinds of physical stop loss orders: stop limit and stop market.

• Stop limit. Once the market reaches your stop loss price, a stop limit order will be placed to sell at your specified price or better. The advantage is you’ll get a better price. The disadvantage is that your order is based on a specific price. If the market declines quickly, it may plummet below your stop limit and your sell order may never be executed.
• Stop market.  A stop market order is preferred for its greater reliability. In a stop market order, when your stop loss price is reached, your sell order becomes a market order and must be executed at the next price. You may lose a fraction more than you planned on, but it’s less risky than the loss you could be saddled with if your stop limit order is never filled.

Determining where to set your stop loss depends on the individual trader’s risk tolerance. You must decide for yourself the amount of risk you can afford and that you’re comfortable taking. Successful futures traders must learn when to cut their losses and move on to the next opportunity.

You may already be reading and visiting internet sites or participating in a local traders club. These are great places to start your education. You’ll gain ideas and theories from which you can start to build your system. But they can’t deliver a fully realized system, ready to use and proven to perform. As in many fields, education is only the first step to success. You have to learn by doing. You can’t really learn how to trade without actually trading.

You can save yourself years of lost time and money by following in the footsteps of a master trader. Futures trading is a complex profession. It is often easier to learn successful trading techniques, what and how to chart, indicators to watch for, and how everything comes together by watching over the shoulder of a successful professional trader. It’s the apprenticeship approach to learning and it has considerable value in futures trading.

If you want to fast track your education as a futures trader, you need to find a successful winner to emulate. There is no faster way to learn the intricate ins and outs of this complex venture than by watching someone who has already achieved mastery. Look for someone who trades daily and makes money consistently. Many people talk the talk but few actually walk the walk. You don’t want to emulate someone who has just written about futures trading, you want as your mentor someone who has proven his success in the marketplace.

That’s why I developed the Futures Trading Secrets Course. After spending thousands of hours and thousands of dollars testing what’s out there and finding out what works and what doesn’t, I wanted to pass along my knowledge. They used to say, “Those who can, do and those who can’t, teach.” I believe that those who can should do and teach. That’s the reason I turned my successful trading system into a teachable interactive course. It’s the next best thing to looking over my shoulder. I show you proven techniques you can master on Sims before trading on the e-Mini. Click here to find out more about me and how I developed the Futures Trading Secrets Course. See what our students say. I provide continuing mentoring through internet group training and one-on-one coaching, as well as on our Futures Trading Room website which is available only to our students. And I’m always available by phone — just don’t call until after the market closes!

Learning is a four-step process, each step in the ladder building upon the previous step and leading us to the next step until we reach our goal. We move from unconscious to conscious knowledge and from incompetence to competence as we move up the learning ladder.

1. Unconscious Incompetence: You Don’t Know What You Don’t Know!
   Everyone starts out at this level. You’re curious about futures trading. You are mesmerized by the potential rewards (are those $$ in your eyes?) and think you can beat the high risks. It just doesn’t look that hard. We call this the babe in the woods phase. You’re totally clueless. You have no idea how much you need to learn to become successful.
2. Conscious Incompetence: You Know That You Don’t Know!
   You’ve had a couple of losses and gotten the wind knocked out of your sails. You feel incompetent and realize just how little you know. You finally realize how much you have to learn before you can start trading profitably. You have entered the fire in the belly phase. You are driven to learn everything you can. You are totally focused on developing, practicing and perfecting your system.
3. Conscious Competence: You Know That You Know!
   Magic! You’re winning! Your system is working and you’re on top of the world. But you are still conscious of every detail, watching every indicator constantly, working hard to keep everything in focus while you work your system. You are in the groove and working it.
4. Unconscious Competence: You Don’t Know That You Know!
   You have arrived! You are trading in the zone. You are working your system automatically and effortlessly. You have become a master trader!

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