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This article was published by the Stocks, Futures, & Options Magazine
in September, 2007 and was written by our VP, Ilan Levy-Mayer. We think this article is timeless and whether you are beginner or advanced trader, you will enjoy it.
ESPECIALLY DURING THE CURRENT HISTORICAL VOLATILITY…..
Perhaps the greatest luxury I have in this business is the ability to observe the experiences of many traders with different personalities, life schedules and risk capital, each trading in a variety of markets. What most astute brokers realize is that, over time, as some individuals prematurely exit winners while others desperately cling to losers.
I started as a commodity broker back in 1998, when commissions of $25 per round turn for the E-minis were considered a deep discount. I had the luxury of observing many types of day traders and saw things from the sidelines that most traders could not see during the heat of battle, one of which is the importance of solid money management for the long-term survival of day trade.
Day trading is by definition a trade that is initiated and completed during the same trading day. In this wide category, you will find many types of traders. On one end of the spectrum are scalpers, who go for one or two ticks of profit several times a day in trades lasting just seconds. On the other side are speculators who stay in a position from the start of the day until the close. One of the main appeals of day trading for all types is that the trader goes home flat without having to worry about positions. When the market closes, the day is done.
Money management, as the name implies, is applying prudent principles to help conserve your trade (risk) capital. Without risk capital to trade, a speculator does not have a chance to succeed.
I’ve received some questions about the price limits or circuit breakers we have seen mostly in stock index futures. Hopefully this explains things a bit better:
A price limit is the maximum price range permitted for a futures contract in each trading session. When markets hit the price limit, different actions can occur depending on the product being traded. Markets may temporarily halt until price limits can be expanded, they may remain in a limit condition or they may stop trading for the day, based on regulatory rules.
This is for Stock Index futures but keep in mind MANY other markets are experiencing LARGE swings and moves.
Overnight limits (5:00 P.M. – 8:30 A.M., Central Time): the futures contract is limited to a 5% price move up or a 5% price move down, based on the futures contract’s prior day’s settlement price (3:15 P.M., Central Time).
This applies to the main stock index futures contracts available, such as the ES, MES, NQ, etc.
What is so dangerous you may ask?
If you are long an ES during the night session and the market is limit down (5%) you can NOT get out. There is a chance that when the market opens up at 8:30 AM CDT that the market will then go down the 7% limit with out you being able to exit. That means that on certain situations you can lose MORE than you have in your account.
If you don’t understand how the circuit breakers/ price limits work…make sure you call us and talk to a broker at + 1 310 859 9572
This only applies for the overnight session ending at 8:30 A.M. Central Time. At that point, a new set of rules kick in ONLY to the downside….
-7% Trading Halt 15 mins
-13% Trading Halt 15 mins
-20% Closed for rest of day
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time when it comes to Futures Trading.
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Economic Reports, source:
Order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts here in contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgement in trading.
Posted in: Future Trading News