c06 JWBT016-Busby October 10, 2008 20:38 Printer: TBD
70 STRATEGIES TO WIN
Euro-stock equity index futures. One must have a margin account to trade
futures. A regular stock trading account cannot be used.
The leverage that works well for me can be disastrous for a trader who
does not understand the market. He will lose money and lose it fast. In
fact, one of the downsides of futures is that you can lose more cash than
you have in your account. As with any margined trading account, you must
maintain a minimum balance to support your level of trading. If funds fall
below that level, a margin call will be issued. That means that the mone-
tary shortage must be immediately covered or some really bad things can
happen. Therefore, before you trade futures, know and understand the risk
and be certain that you can afford those risks. Also, educate yourself be-
fore you trade. In addition to learning the ropes, observe trading for some
time. Get a feel for how prices move and spend many hours engaged in
simulations.
Anytime money can be made quickly, it can also be lost in the blink
of an eye. Therefore, when you are trading futures, it is critical that you
know and use good money management and risk management skills. Use
protective stops and other money management strategies explained later
in this book.
Another great aspect about trading futures is that it is possible to make
money in bull or bear markets. In fact, in a bear environment, when prices
begin falling, they tend to move downward much more quickly than prices
move up in a bullish environment. When prices move up, they usually move
up in steps and then consolidate. In contrast, once prices start plummet-
ing, they often just race down. Therefore, the flexibility and possibilities of
trading futures are very alluring to me.
There is rarely a business day when I do not trade index futures. I have
many strategies for various market conditions. However, I have selected
an S&P, a Nasdaq, and a Dow breakout trade that I have been making fre-
quently in current market conditions. When I refer to a “breakout” trade, I
mean that for some reason prices move out of an identified range and break
above or below it. Sometimes news will move prices up or down, or a price
movement may be generally associated with a time of day, month, or year.
At any rate, these trades are made when the breakout occurs. Let’s begin
with an S&P trade. The following trades are day trades, not investments or
long-term positions, and they are made in the futures markets.The Face Peel
I call this trade the “Face Peel” because if you are unfortunate enough to
get caught on the wrong side of it, you will feel the pain of a peel. It is an