In the world of commodity futures trading, the discipline to follow trading rules is one of the keys to being a successful trader. Armed with a trading plan, many traders fail simply because they break their own rules. Blinded by strong emotion while in a rallying or volatile market, traders act irrationally by entering or exiting the market at the wrong time. Due to the leveraged nature of commodity futures trading, they end up losing a huge bulk of their capital within a short span of time.

 

The following are a list of trading rules that all traders should know and adhere to in order to emerge as winners in the commodity futures market:

 

Use A Tried And Tested Trading Plan

 

Many commodity futures traders change their trading plans too frequently especially in situations when the market does not seem to be moving their way. The right way to use trading plans is to test them out on paper trading first, learn about the strengths and weaknesses of the system, and then implement them on low-risk trades first.

 

Gut Feel

 

There may be situations where the commodity futures market just does not look right. In addition, there may be times when traders are distracted by too many occurrences in the market. It may be better not to trade at these times as the inability to concentrate will also lead to losses.

Remember To Cut Losses And Let Profits Run

 

It’s a fact that your commodity futures trades will not work 100% of the time. All you need is for at least 40% of your trades to work. These are the times when you let profits run and offset all the other smaller losses you have made. On the flip side, diligently cutting your losses at stop loss points that you had planned for is crucial. This is the other part of the equation that is needed for overall trading success. You have to be able to afford to lose in order to win.

 

Always Trade With The Trend

 

Trading with the trend provides you with a greater probability of winning trades. If the market is on an uptrend, you should also be bullish. Otherwise, you would be bearish on a downtrend market. In addition, you should train yourself to identify points in which a major trend is going to reverse. In these cases, you won’t want to be caught at the wrong side of the market and therefore need to plan your exit soon.

 

Analyzing Your Risk Reward Ratio

 

The risk reward ratio of each commodity futures trade should be high enough to make it worth the risk of entering into a trade. As a rule of thumb, a risk-reward ratio of 1 to 3 should be the minimum ratio required to enter a trade. This means that you are risking $1000 to make a potential of $3000 from the market. Thus, you are risking a relatively small amount, in order to make a substantial amount of profits.