Welcome to the Beginner's Guide to Futures Trading. This guide provides a general overview of the futures market as well as descriptions of some of the tools and techniques common to the market. As we will see, there are futures contracts that cover different classes of investments (eg stock index, gold, orange juice). We will not go into the details of each of them.

It is suggested that if, after reading this guide, you decide to start trading futures, you will spend some time researching the specific market (in which you choose to trade). As with any endeavor, the more effort you put into preparation, the greater your chances of success!

Introduction

Futures can be used both for effective hedging of other investment positions and for speculation. This carries the potential for good profits associated with the use of leverage (we will discuss this issue in more detail later). However, let's not forget that the use of leverage is always associated with increased risk. Before you start trading futures, you should not only be as theoretically prepared as possible, but also be absolutely sure that you are able and ready to accept financial losses.

The basic structure of this guide is as follows:

We will start with a general overview of the futures market, including what futures are and how they differ from other financial instruments. Let's discuss the advantages and disadvantages of using leverage.

The second section gives some considerations before trading, such as how to choose the right brokerage firm for trading futures, describes different kinds futures contracts and various types of trades.

The third section is devoted to the evaluation of futures, including fundamental and technical methods of analysis, as well as software packages that can be useful to you in futures trading.

Finally, in the fourth section of this guide, an example of actual futures trading is given. Step by step, we will look at the choice of instrument, market analysis and making a deal.

By the end of this guide, you should have a basic understanding of futures trading, which will allow you to decide if this type of trading is right for you. And it will provide a good foundation for further study of the futures market, if you decide that such trading suits you.

Basic structure of the futures market

In this section, we will look at how the futures market works, how it differs from other markets, and how leverage works on it.

How the futures market works

You are probably familiar with the concept of financial derivatives (derivatives).

A derivative is a derivative of a financial instrument formed by the movement of its price.

In other words, the price of a derivative (derivative of the underlying asset) depends on changes in the price of that very underlying asset. For example, the value of a derivative associated with the S&P 500 is a function of the price dynamics of the S&P 500. Now, a future is essentially a derivative.

Futures are one of the oldest futures contracts. They were originally designed to allow farmers to hedge against changes in the price of their produce between sowing and when the crop is harvested and brought to market. As such, many futures contracts focus on things like livestock (cattle) and grains (wheat). Since then, the futures market has expanded to include contracts linked to a wide range of assets, including: precious metals (gold), industrial metals (aluminum), energy (oil), bonds (treasuries) and equities (S&P 500 ).

How futures differ from other financial instruments

Futures have several differences from many other financial instruments.

First, the value of a futures contract is determined by the movement of something else - the futures contract itself has no inherent value.

Secondly, the life of futures is limited. Unlike stocks, which can exist forever (or as long as the company that issued them exists), a futures contract has an expiration date after which the contract ceases to exist. This means that when trading futures, market direction and timing are vital. As a rule, when buying a futures contract, you will have several options for its expiration date.

The third difference is that many futures traders, in addition to making direct bets on the direction of the market, use more complex trading, the results of which depend on the relationship of various contracts with each other (we will talk about this in more detail later). However, the most important difference between futures and most other financial instruments available to individual investors is the use of leverage.

Leverage

When buying or selling a futures contract, the investor does not have to pay for the entire contract. Instead, he makes a small upfront payment in order to initiate the position. As an example, let's consider a hypothetical trade in an S&P 500 futures contract. The value of one pip of an S&P 500 contract is $250. X 1400). But in order to start trading, it is enough to deposit an initial margin of $21,875.

Note: Initial and maintenance margins are set by exchanges and are subject to change.

So what happens if the S&P 500 level changes? If the S&P rises to 1500 (up only 7%), then the contract will be worth $375,000 ($250 X 1500). In other words, the contract value increased by $25,000 ($375,000 – $350,000 = $25,000). And the investor with a clear conscience will pocket this difference. Thus, with an initial investment level of $21,875, he will earn $25,000 in net profit (more than 100% profitability). The ability to achieve such large profits, even with a small change in the price of the underlying index, is a direct result of leverage. And it is this opportunity that attracts many people to the futures market.

Let's now look at what might happen if the S&P 500 falls in price. If the S&P falls ten points to 1390, the contract will be worth $347,500 and our investor will have a loss of $2500. Every day, the exchange will compare the value of the futures contract with the client's account and either add a profit or subtract a loss . The exchange requires an account balance to remain above a certain minimum level, which in the case of the S&P 500 is $17,500. So in our example, the trader would have a $2,500 "on paper" loss, but would not be required to deposit additional cash to save the open position.

What happens if the S&P drops to 1300? In this case, the futures contract will be worth $325,000 and the client's initial margin of $21,875 will be wiped out. (Remember that leverage works both ways, so in this case a just over 7% drop in the S&P could result in a complete loss of the investor's money.) IN this case, either the investor deposits cash to replenish the margin, or the contract closes at a loss.

Considerations before trading

Before you start trading futures, let's look at a few important things. First of all, you must decide on the choice of a broker, the types of futures that you will trade and the type of trade. But first things first.

Choosing a Brokerage Firm

First of all, you need to decide on the choice of a broker. You can choose a full-service broker who will give you a high level of service and advice, but it will most likely be quite expensive. Or you can choose a discount broker that provides a minimum of services, but for a small commission. It all depends on your preferences and level of well-being. Probably many readers of this article are private traders and investors for whom a discount broker is the best option.

As always, when choosing a broker, make sure that you approach this issue carefully, especially if you have not previously encountered this “beast”. Important points are commission rates, margin requirements, trade types, software and user interface for monitoring and trading, and the quality and speed of customer service.

You can read more about choosing a broker in the article: ““.

Categories of futures markets

If you are a stock trader, you know that there are many different industries (eg technology, oil, banking). While the mechanics of trading for each industry remains the same, the nuances of the major industries and businesses vary widely. It's the same with futures. All futures contracts are similar, but futures contracts track such a wide range of instruments that it is important to be aware existing categories. For a better understanding, it is useful to compare categories of futures with sectors in the stock market and each futures contract with a share. The main categories of futures contracts, as well as some of the general contracts that fall into these categories, are listed below.

1. Agriculture:

• Cereals (corn, oil, soy)
• Livestock (cattle, pigs)
• Dairy (milk, cheese)
• Forest (wood, pulp)

2. Energy:

• Raw oil
• heating oil
• Natural gas
• Coal

3. Stock indices:

• S&P 500
• Nasdaq 100
• Nikkei 225
• E-mini S&P 500

• Euro/$
• GBP/$
• Yen/$
• Euro/Yen

5. Interest rates:

• Treasuries (2, 5, 10, 30 years)
• Money markets (eurodollar, fed funds)
• Interest Rate Swaps
• Barclays Aggregate Index

6. Metals:

• Gold
• Silver
• Platinum
• Non-ferrous metals (copper, steel)

You can trade any of these categories. For starters, you may want to review what you already know. So, for example, if you have been trading stocks for many years, you can start your futures trading with stock indices. In this case, you already know the main forces driving the stock market, and you just have to learn the nuances of the futures market itself. Similarly, if you've worked at Exxon for thirty years, you might want to focus on energy initially, as you probably understand what determines the direction of the oil market.

Once you have chosen the category of the futures market, the next step is to determine which instruments you will trade. Let's assume that you decide to trade energy instruments. Now you have to decide which contracts to focus on. Is your interest in crude oil, natural gas or coal? If you choose to focus on crude oil, you can choose from West Texas Intermediate, Brent Sea, or a host of other options. Each of these markets will have its own nuances: different levels of liquidity, volatility, different contract sizes and margin requirements. With these points, without fail, you should decide before starting a career in the futures market.

Types of transactions in the futures market

At the simplest level, you can buy or sell a futures contract with the expectation that its price will rise or fall. These types of trades are familiar to most stock market investors and are easy to understand. Thus direct buying and selling is likely good idea to start trading futures. Once you've made some progress in futures trading, you'll probably want to use some of the more sophisticated futures trading methods. Since this is a beginner's guide, we will not cover these methods in detail, but will limit ourselves to them. brief description. You can learn more about them in the relevant sections of this site. The types of trades commonly used by professional futures traders are:

• A trader opens a long (short) position in the futures market and simultaneously a short (long) position in the money market. This is a bet that the price difference between the commodity futures and the commodity itself will fluctuate. For example, a trader can buy 10-year US Treasury futures and simultaneously sell 10-year US Treasuries themselves. Thus, he will have two open positions, one to buy (long), the other to sell (short). Prices for both positions, for obvious reasons, will move almost simultaneously, but fluctuations between them are also inevitable. With these fluctuations, the total profit "on paper" will be either positive or negative. The trader, of course, is interested in those fluctuations, in which the total profit is in the black, on which he closes both positions, taking the jackpot;
• The trader opens long and short positions on two different futures contracts. This is a bet that the difference in price between them will change. For example, a trader might buy an S&P 500 contract for March delivery and sell an S&P 500 contract for June delivery. Or buy a contract for West Texas Intermediate (WTI) oil and sell a contract for Brent Sea oil. The profit logic here is the same as in the previous paragraph;
• Futures are often used for hedging. For example, if you have a large block of stock that you don't want to sell for tax reasons, but you're afraid of a sharp market drop, then you could sell S&P 500 futures as a hedge against a stock market decline.

Preliminary market analysis

In order to choose a futures contract for speculative trading or before entering into a particular deal with the selected futures, it is necessary to conduct at least a cursory analysis of the current market situation. Currently, the most popular methods of researching the current and predicting the future market situation are fundamental and technical market analysis.

Fundamental analysis of futures

This type of analysis is aimed at examining a variety of micro- and macroeconomic indicators that can potentially affect the future prices of futures contracts. Since the futures price has the strongest correlation with the price of its underlying asset, all those factors that can somehow affect the balance of supply and demand in relation to the underlying asset are examined.

For example, if we are talking about currency futures, then the main factors that can influence them are: key indicators FOREX market, as levels of interest rates, indicators of inflation and deflation in countries whose national currencies make up the currency pair under study. A great influence is exerted by various kinds of macroeconomic news, published both on a regular basis (in the so-called), and news of a spontaneous nature.

Usually, a fundamental analysis of the stock market is carried out from top to bottom: first, macroeconomic factors affecting the state of the economy as a whole are considered, then the situation in the industry to which the issuer of the underlying asset of the futures belongs is analyzed, and finally, the state of the company itself (the issuer of the underlying asset) is assessed.

You can get acquainted with the basics of fundamental analysis by clicking on the link: "".

Technical analysis of futures

This type of analysis is carried out exclusively using price charts. A technical analyst is not particularly interested in how the basic fundamental indicators change, since in his work he is guided by the main postulate of technical analysis:

The price on the chart already includes and reflects absolutely all those factors that in one way or another can affect it.

Another basic postulate of technical analysis is the statement that the price tends to move in the so-called. That is, in other words, at any current time, the price is in one or another (in an uptrend or downtrend) trend. And even if you see a clear absence of a trend on the chart (the price is in a flat), this only means that only a small section of the entire price chart is open in front of you and in fact the current flat is nothing more than a consolidation zone before the next reversal of the trend present on chart with large .

The trends visible on the charts of small timeframes are nothing but the constituent parts of the trends on the charts of large timeframes. So a downtrend on a chart with a period of M5 (five minutes) can be just a part of an uptrend on a chart with a period of H1 (hour), take a look at the picture below:

In addition, the technical analysis of the market has a whole range of tools called indicators.

In general terms, a technical indicator is a quintessence or extract from the entire price chart for a certain period of time.

Thanks to the use of modern computing power, it is possible, as they say, to view the price chart from different angles and in different aspects. The indicators are built according to the price chart data and are designed to simplify the process of analyzing the entire huge data array of its components.

The result of the indicator is usually a buy signal (indicating that the price will rise) or a sell signal (indicating that the price is about to fall). Such signals coming from individual indicators are very unreliable, and therefore their use only makes sense in conjunction with other technical analysis tools (with other indicators, support/resistance lines, patterns).

Practical example

Now that you are familiar with the concepts and tools of futures trading, let's take a hypothetical step-by-step example.

Step 1: Choose a brokerage firm and open an account. For this example, we will use the brokerage firm “XYZ” and open an account there.

Step 2: Decide which category of futures you will trade. For this example, let's choose to trade metals futures.

Step 3: Decide which instrument from the selected category to trade - let's choose gold.

Step 4: Conducting research on the selected market. This research can be fundamental or technical, depending on your preferences. In any case, the more work you do, the more likely you are to succeed in trading.

Step 5: Form an opinion about the market. Let's say that after doing our research, we decide that gold is likely to rise from its current level of around $1675/oz to $2000/oz over the next six to twelve months.

Step 6: Decide how best to express our opinion. In this case, since we believe the price will rise, we want to buy a gold futures contract – but which one?

Step 7a: Evaluate the available contracts - there are two gold contracts. Standard contract concerns 100 ounces, and the electronic micro contract (E-micro) concerns 10 ounces. To manage our risk in our initial foray into the futures market, we will choose the 10oz E-micro contract.

Step 7b: Evaluate available contracts. We then select the month in which the contract expires. Remember, with futures it is not enough to understand the direction of the market, you must also understand the timing. A longer contract gives us more time to “be right”, but is also more expensive. Since, according to our opinion, established in paragraph 5, the price will increase in a period of six to twelve months, we can choose a contract that expires in eight or ten months. Let's choose ten months.

Step 8: Complete a trade. Let's buy a 10-month E-micro gold contract. Suppose the contract is worth $1680.

Step 9: Consider the initial margin. In this case, the margin will be $911 (this is the amount of cash that provides us with the possession of one E-micro gold contract due to leverage).

Step 10: Set a stop loss. Let's say we don't want to lose more than 30% of our bet, so if the price of our contract falls below $625, we will sell.

Step 11: Monitor the market and adjust your position if necessary.

Note: This example is purely hypothetical and is not a recommendation for action. These are the basic steps to perform futures trading. In the process of gaining experience and knowledge, you will probably develop your own system that will suit you completely.

For all the time that commodity exchanges have existed, they have not changed a bit - all the same processes are taking place there. You can trade anything on the exchanges, from matches to gold and oil. The main instrument used there is futures contracts. That is, the prices of goods listed on the exchanges are formed taking into account supply and demand. main reason for which agricultural products are widely used on the stock exchanges is a serious risk.

But the truth is, no one can predict the future harvest in a year or two. Therefore, in order to somehow insure their funds and future income, agricultural producers conclude a futures contract with their future buyers. The contract specifies a fixed price and a delivery time for the goods. It turns out that the manufacturer has insured himself against the fact that in some future the prices for his goods will fall below that which he offers.

So what is a futures?

As mentioned above, a futures gives a potential buyer a guarantee that his purchased bond, product or currency will reach the addressee on time and strictly at the agreed price. But as a rule, it rarely comes to delivery, since the owner of a futures contract simply sells it and receives money for it, or pays the difference between the price specified in the contract and the market price. This is how money is made on stock exchanges. That is, according to the futures contract, you are obliged to make a purchase.

But in this type of trading there are serious risks, both on the part of the buyer and the seller. That is, the buyer and the seller can both lose all their money and make good money. To reduce the risks of the transaction, futures have a certain number of requirements that must be met by both parties to the transaction. After the exchange or delivery of the goods, the futures must be closed. Keep in mind that futures contracts are one of the riskiest investment instruments that is not available to everyone. Therefore, if you want to try your hand at trading such contracts, you must ensure that you have the necessary knowledge to do so.

When should you sell and when should you buy?

As far as you understood from the previous lines, trading in futures is fundamentally different from trading in ordinary goods. And when should an investor decide to sell or buy futures? The best source of information for an investor to help make a decision is fundamental analysis. This method operates on simple and very important factors: interest rates, supply and demand and weather conditions. But do not think that researching a product for its profitability is very a simple matter. A certain percentage of investors in search of information use technical analysis.

Who works with futures?

• Consumers buy contracts to protect their prices or to better plan their business;
• Producers sell futures to secure a fixed price for their goods in the future;

That is, if the deal is successful, manufacturers may not worry that the price of their goods may change. The manufacturer has at his disposal a guarantee that he will receive his money for the goods sold.

But speculators risk more than anyone else, since they are driven only by profit and nothing else. Speculators are not consumers and producers. Futures for them are a common source of income. Speculators are constantly studying charts, supply and demand, and making all sorts of analyzes of the situation on the stock exchanges. And according to the data received, they make appropriate decisions.

How are futures traded?

A contract is bought if, according to the investor, the commodity or financial instrument begins to grow in price. Scientifically, this can be called an "open long position." In view of the fact that the investor bought a futures contract with the obligation to buy back the goods at a fixed price, he will definitely make a profit if the cost of the goods does not increase. If a “short position” is opened, then the investor acquires an obligation to sell the goods at a fixed price. He will receive a profit only if the price of the commodity falls before the expiration date specified in the futures contract.

Investments with the right contribution bring considerable income. But not all areas in today's volatile world can promise such returns.

Gambling

More and more people are coming to the conclusion that it is possible to make money on the futures market, the main thing is to have good intuition and acumen. In essence, a futures contract is a transaction that stipulates the terms of the purchase and sale at a future specific date. The goods are energy resources, agricultural and industrial products, securities.

Profitability of trading is determined by three aspects:

• price forecasting - a key role in deciding whether to increase or decrease;
• trading tactics - technical specifications, calling for a timely entry or exit from the market;
• money management - optimization of all issues related to money.

Simply put, the trader must predict the price to decide the course of action (sell or buy), tactics will tell when it is better to do this, and management will determine the work with the funds.

What game is this

Distinguish deliverable - the provision of a real asset and non-deliverable futures. Thanks to flexible trading, multiple sales are possible, which allows you to increase profitability with the right decision. The initial amount varies depending on the liquidity of the goods. It is higher by as much as the date of execution is closer, because prices are close to real and unpredictability is unlikely.

Each participant in the contract wants to earn more, for this he buys a contract at a low cost and sells it at a higher price. If the owner does not have time to resell his deal before the deadline, he receives the real product. In fact, investors act as swindlers, because they have no power over the assets being sold.

There are several advantages to working with futures:

• all companies entering into such contracts are controlled by special organizations;
• trading in the public domain, which indicates the real prices for the goods, the market is transparent;
• 100% payment is not required for the contract, it is enough to make an initial deposit - margin;
• there is no need to pay for the used credit.

The disadvantage is the urgency and risk. This business proceeds at lightning speed, so the investor must have a cold and prudent mind, developed intuition, and determination.

If you have an amount that you can easily part with in case of failure, then exchange trading is waiting.

But to increase profitability, you need to understand a few points:

• buying a futures means opening a long position, to close which you need to implement such a contract at any time;
• when opening a short position, it provides for the possibility of exiting the market through the purchase of a similar contract;
• the entire value is determined either by the cash price, which is regulated by supply and demand, and the spot price - the market value of the goods in a certain period of time;
• the whole complexity of generating income depends on the right choice and monitoring.

Before choosing a new position, you need to listen to yourself and answer one question: “What will I do under adverse circumstances for me?”. Therefore, the choice of a good strategy plays an important role in future trading. As an example, we can cite a couple of strategies that increase profitability.

Simple and strict

The investor, believing that the difference between the cost of two futures contracts is not true, simultaneously opens long and short positions. Thus, protecting yourself from losses in the auction associated with price fluctuations.

Unity is strength!

Bought three contracts with one common asset will increase the profitability of the contract in the event that the direction of the futures price is not determined.

Discipline is everywhere!

For successful trading, you must always adhere to the chosen algorithm of actions:

1. decide on the style of trading. The longer the position is held, the higher the capital;
2. monitor past experience. Analytical tools have been created to help, which makes it easy to view possible transactions in the past;
3. having systematized, within a month lose on a demo account and optimize;
4. transfer point 3 to a real account and trade one contract;
5. profit reached 50% according to statistics, you should raise the risk.

All work requires nerves of steel, so use this strategy for a long time
it is forbidden. After increasing the profitability and having earned a sufficient deposit, you should either choose a different path, or, having reduced the risk, continue along the chosen path.

But the choice of how to make money on futures is purely individual.

A novice trader on such an exchange is bound to fail. But, having learned to get rid of losing trades in a timely manner, you can correctly and timely place free assets in more profitable offers. It is better to repeatedly lose several strategies and make one your trading strategy.

More does not mean profitable. Sometimes quality suffers in the pursuit of quantity. Perhaps you should listen to your inner voice and conclude one, but the most profitable deal leading to maximum profitability and minimum loss.

Competent calculation and capital management, risk management, will lead you to the development of an individual strategy.

You can start with any amount.
The main thing is not to make ascoms. :)
Adequate risk assessment

In our discussion of liability issues in Chapter 3, we have so far talked little about trading itself. The process of successful trading is often more misunderstood than even the idea of ​​total risk taking. As I mentioned in the first chapter, most traders mistakenly assume that since the actions to open and close trades are inherently risky, they therefore understand and accept this risk - there is nowhere to go. I never tire of repeating that this is very far from the truth.

Accepting risk means accepting the results of your trading without emotional discomfort or fear. You need to learn to think about trading and the market in such a way that the possibility of being wrong, losing money, making a mistake, or missing an entry into a profitable trade does not undermine your performance and throw you out of the “opportunity stream” state. If you learn to take risk at the entrance to a trade, but you are afraid of further consequences, then nothing good will come of it, because how all these fears will affect your perception of information, which ultimately can lead to the realization of exactly what you tried their best to avoid it.

I offer you these principles of thinking, consisting of a set of beliefs, which will allow you to be focused in every moment of time, as well as in a state of “flow”. With this approach to trading, you will no longer try to get something from the market or avoid some unpleasant things. You will be able to give the market a free hand and make yourself able to take advantage of emerging trading situations.

When you become open to the opportunities that the market provides, you no longer impose any restrictions or expectations on its behavior. The movement of the market in any direction will be absolutely acceptable for you. From time to time the market will create certain situations that you will identify as potentially profitable entries. You will act among these opportunities in the best way for yourself and your deposit, but your mood and performance will not depend on the behavior of the market.

There is one problem. How is it possible to take trading risks calmly, without psychological discomfort and fear, when you just have to think about them, you immediately begin to feel these not the most pleasant emotions. In other words, how can you maintain a confident working state when you are absolutely sure that at any moment you can make a mistake? As you can see, your fears and feelings of discomfort are fully justified and rational. Usually, mistakes start when you are too stressed about them.

However, if the market opportunities are open to all traders equally, then this is not the same thing for each trader means the probability of being wrong, losing money, making a mistake or missing the entrance to a profitable trade. Not everyone has the same beliefs and views regarding these things, and for this very reason, our emotional sensitivity also differs. In other words, we can all be afraid of completely different things. All this may seem obvious, but I assure you that it is not. When we are afraid of something, the emotional discomfort we feel at that time is no doubt so powerful that it is only natural to assume that other people also share our feelings.

I'll give you one great example to illustrate what I mean. I recently worked with a trader who was deathly afraid of snakes. He was afraid of them all his life and could not remember the moment when this fear was not in him. He is now married and has a three-year-old daughter. Once, when his wife left somewhere, he and his daughter were invited to dinner by friends. This trader did not know that the child of his friends had one rather exotic pet - a snake.

When a child decided to show off his new pet and dragged him into the living room, my client was so scared that in just a few jumps he ended up in another part of the room to be away from the snake. The girl was so passionate about her snake that she did not leave her alone and ran around the room with her.

In telling me this story, he emphasized that in addition to the unexpected encounter with the snake, he was also shocked by the behavior own daughter. She did not experience any fear of the reptile, which went against the beliefs of her father. Since his fear was so strong, and the affection for his daughter so high, it was unthinkable for this trader that the child did not share his worldview. This girl simply did not have the opportunity to adopt this fear from her father, unless, of course, he himself taught her to be afraid of snakes, or she herself already had some unpleasant moments associated with them. In the case of such a meeting “from scratch”, without any influence on beliefs from outside, a living snake would cause pure charm and genuine interest.

Just as my client assumed his daughter would be afraid of snakes, most traders assume that successful traders, like themselves, also fear being wrong, losing money, making a mistake, or missing out on a profitable trade. They think that those who are successful have somehow neutralized their fears through incredible courage, nerves of steel, and self-control.

Actually, almost everything that seems to be understandable in trading is usually not. Of course, any one or all of these character traits can be present in any successful trader. However, all of them play no role in their stable trading results. Courage, nerves of steel and self-control - all this can lead to internal conflicts, where one force will be used to counter the other. Any degree of struggle, inner tension, or fear associated with trading will push you out of the “flow” state, which will therefore worsen your results.

This is exactly what separates professional traders from the crowd. When you take risk the way the pros do, you will no longer perceive any movement or action in the market as a threat to yourself. Accordingly, if nothing threatens you, then there is nothing to be afraid of. And if there is nothing to fear, then courage becomes irrelevant. Moving on, if you're not under constant stress, then why do you need nerves of steel? And if you are no longer afraid to slip into reckless and high-risk trading, because you have the appropriate restraining mechanisms, then there is no need for self-control.

If you haven't lost sight of what I've been saying, then I would like you to remember one important thing: there are very few people who come into trading and start their lives by developing optimal trading beliefs and attitudes about responsibility and risk. Such traders, of course, are found, but extremely rarely. Everyone else goes through the same cycle that I described in the example of the novice trader: we start with an unencumbered state of consciousness, then we are seized by panic fear, which reduces our potential at every step.

Traders who break through this cycle and achieve stability as a result eventually learn to stop their fears and accept full responsibility and risk for their trading. Most of those who were able to successfully break this vicious circle did so only when the pain of their huge losses in the market became simply unbearable, which had a positive effect on getting rid of the illusions about the nature of trading.

The very mechanism of this transformation is not so important, because in most cases it happens spontaneously. In other words, they didn't really know much about the changes taking place in their minds until they began to feel the positive effects of their updated perception compared to how trading was going before. This is why very few successful traders can explain what makes up their profitable trading, except, of course, such axioms as “covering losses” and “following the trend”. It is your understanding that it is possible to think like the pros and trade without fear, even if your own direct experience as a trader suggests otherwise.

To be continued...