"Veteran trader Jay Kaeppel describes the opportunities and challenges of futures trading with easy grace and engaging wit. After exploring the risks and rewards, Kaeppel shows how the average trader can succeed in futures by embracing four key principles of trading mastery." - Nelson Freeburg , Editor/Publisher, Formula Research newsletter From the creator of Futures Pro Trading System Software winner of 6 Readers Choice Awards in Technical Analysis of Stocks and Commodities magazineThis book will help you trade futures profitably by showing you how to identify-and-avoid making four common mistakes that can derail your plan and reduce your profits. Following on the heels of his original bestseller, The Four Biggest Mistakes In Option Trading , system developer Kaeppel now focuses his attention on the volatile futures market and shows traders how to trade these markets to their advantage. In Kaeppels quick reading style youll Learn how to assess whether you are financially-and emotionally-ready to trade futures. Determine how much money you can afford to risk. Learn what leverage is and how it can be used to generate above average returns without exposing yourself to too much risk. Understand why "fearing" the market is better-and-safer-than downplaying risk. Now, steer clear of tr4ading missteps and learn how to trade more profitably-trade after trade-with Kaeppels winning strategies.

Jay Kaeppel is the Director of Research at Essex Trading Company Ltd. and an active Commodity Trading Advisor (CTA). With over 12 years of futures trading and system development experience, his expertise as a system developer has been noted by Technical Analysis of Stocks and Commodities magazine. "Formula Research," a national monthly trading system development advisory, editied by Nelson Freeburg has acknowledged Jay Kaeppel's expertise as a trading systems developer by using two of his original systems as the foundation of their own stock market and gold fund trading systems.

Introduction

1

(1)

The Bad News, The Worse News, The Good News and The Better News

1

(1)

Why So Many Fail

1

(1)

What Sets Futures Trading Apart

2

(1)

Attacking From The Bottom Up Versus The Top Down

3

(1)

One Word of Warning

4

(1)

Topics To Be Covered

5

(2)

Lack of a Trading Plan

7

(22)

What is Mistake #1

7

(1)

Why Do Traders Make Mistake #1

8

(2)

The Recipe For Trading Success (That Nobody Wants To Hear)

10

(1)

How To Avoid Mistake #1

11

(1)

The Litmus Test

12

(1)

How Much Capital Will You Commit To Futures Trading

13

(1)

What Market or Markets Will You Trade

14

(2)

What Type of Trading Time Frame Is Best For You

16

(4)

What Type of Trading Method Will You Use

20

(1)

What Criteria Will You Use To Enter a Trade

21

(1)

What Criteria Will You Use To Exit A Trade With A Profit

22

(1)

What Criteria Will You Use To Exit A Trade With A Loss

23

(2)

A Word Of Advice: Adhere to the Four Cornerstones

25

(1)

Go With The Trend

25

(1)

Cut Your Losses

26

(1)

Let Your Profits Run/Don't Let Big Winners Get Away

26

(1)

Summary

27

(2)

Using Too Much Leverage

29

(26)

What is Mistake #2

29

(2)

Understanding Leverage

31

(3)

Why Do Traders Make Mistake #2

34

(1)

How To Avoid Mistake #2

35

(2)

The Role of Mechanical Trading Systems

37

(1)

Determining The Amount of Capital Required

37

(1)

Single Market Factor #1: Optimal f

37

(2)

Calculating Optimal f

39

(1)

Single Market Factor #2: Largest Overnight Gap

40

(3)

Single Market Factor #3: Maximum Drawdown

43

(2)

One Caveat to Analyzing Trading System Results

45

(1)

Arriving at a Suggested Dollar Value Per Contract

46

(2)

Arriving at an ``Aggressive'' Suggested Account Size

48

(1)

Arriving at a ``Conservative'' Suggested Account Size

49

(1)

Arriving at an ``Optimum'' Suggested Account Size for Your Portfolio

50

(1)

Digging a Little Deeper

51

(1)

Summary

52

(3)

Failure to Control Risk

55

(22)

What is Mistake #3

55

(1)

Why Do Traders Make Mistake #3

56

(2)

How To Avoid Mistake #3

58

(2)

Risk Control Method #1: Diversification Among Different Markets

60

(3)

Risk Control Method #2: Diversification Among Trading Time Frames and Methods

63

(2)

Risk Control Method #3: Proper Account Sizing

65

(1)

Risk Control Method #4: Margin-to-Equity Ratio

66

(3)

Risk Control Method #5: Stop-Loss Orders

69

(1)

Placing a Stop-Loss Order In the Market Place

69

(2)

Using Mental Stops

71

(2)

Not Using Stop-Loss Orders At All

73

(1)

The One Important Benefit of Stop-Loss Orders

74

(1)

Summary

75

(2)

Lack of Discipline

77

(21)

What is Mistake #4

77

(4)

Why Do Traders Make Mistake #4

81

(1)

How To Avoid Mistake #4

82

(1)

Overcoming The IQ Obstacle

83

(2)

A Word of Advice: Don't Think, React

85

(2)

Avoid Simple Traps

87

(2)

The Cure for ``Woulda, Shoulda, Coulda''

89

(2)

System Development versus System ``Tinkering''

91

(2)

Asking The Right Question

93

(3)

Summary

96

(2)

Conclusion

98

(5)

Appendix A: Mathematical Formula for Standard Deviation

103

(1)

Standard Deviations

103

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