World Link Futures has considerable experience in working with the beginner. Below are some observations that may, in turn, help you with your trading:
Don't set stops too tightly.
It is appealing to think that risk from futures trading can be minimized simply by setting stop orders so that the most that can be lost on a futures trade is restricted to some small amount, say $150. Unfortunately, what tends to happen in this case is that the stop order is elected or hit 99 out of 100 times, and often within a day or two. While loss may be small for any one trade, the odds are high that you will suffer a long string of such losses before making a winning trade and this can seriously erode your capital base.
If you consider that the tick value of most contracts is about $15, then by limiting loss to say, $150 per trade, you have to buy within 10 ticks of the low or sell within 10 ticks of the high over the entire holding period which may be several weeks, or else you will be stopped out of the trade. This is difficult to do at any time and almost impossible to do on a consistent basis. (Only if you are day trading can stops be set this tightly. Of course, the profit objective in that case is usually around $300 so the amount risked is actually high relative to the amount expected to be gained.)
The bottom line is that buying or selling a futures contract outright is risky and you have to therefore be willing to risk money on every trade. As a general ballpark figure, you should expect to risk an amount roughly equal to the initial margin per contract. If you are not willing to risk that amount of money, then you should consider less risky contracts, or less risky strategies than buying or selling a futures contract outright.
Don't put on a futures spread as a hedge against loss.
You buy a futures contract and the price goes down. You feel confident that the downward movement is only temporary and that prices will soon rally and do so for a long period of time. The problem is that, in the mean time, prices have continued to fall and this has seriously eroded your capital base. You determine that by selling the same contract of a different expiration month, that position will protect you from any further loss until the downward period is over.
