One of the most powerful figures in the financial world – Лео Меламед (Leo Melamed) – revolutionized futures trading on the Chicago Mercantile Exchange. However, like his fellow financial genius George Soros, Melamed first had to take an amazing journey, which included eluding the Nazis and Russians, to get to the United States. IN 1939 year he and his family fled from Poland to Lithuania, but, when they got there, they needed a transit visa, to continue the journey. “Even my philosophical father, – told Melamed, – could not explain, how you can reduce a person's life to waiting in line for a piece of paper, which could mean the difference between life and death”. Crossing Siberia by train, young Melamed learned his first lesson in strategy – stay calm and focused under fire – because, to his amazement, father plunged into chess, obviously, oblivious to the chaos around him.
IN 1950 year he entered the University of the piece. Illinois, where did he start studying at the preparatory courses – first in the medical, and then on legal. After graduating courses, he entered the Faculty of Law, And, although I hated intense classes, Recognized: “They made me think, and think for sure”. While still a law student, Melamed asked for a job “Messenger” at that, what, as he thought, was a law firm “Merrill, Lynch, Pier, Fenner and Bean” (Merrill, Lynch, Pierce, Fenner & Bean). In their office, not understanding, what is doing, Melamed has filled out a questionnaire, was briefly interviewed and got a job. Once in the operating room of the Chicago Mercantile Exchange, he recalls: “I turned out to be Alice, entering through the mirror into the world of more than one, and hundreds of Mad Hatter”.
Pretty soon he “fell in love” to the Chicago Stock Exchange and convinced his father to lend him 3.000 Doll., to buy a place and trade for yourself. There was still a lot of manipulation in those days, and corners did everything – from eggs to onions; that's why, when Melamed was eventually elected to the board of governors “Merck” in 1967 year and its chairman in 1969 year, he focused on reforms and improving self-government. Remembering this, he wrote: “We were… pioneers, we told ourselves, inspired by skill and fortitude, and dedicated to preserving the spirit of boundaries”. IN “The Art of Futures Trading” he draws the line between borderline myths and everyday reality, when it comes to skills, required for futures trading.
“The Art of Futures Trading”
For many, futures trading – benediction.
For many – Bloody hell.
For most – mystery.
Where does this divergence of opinion come from?? Where does this attitude of hate and love come from?? Maybe, The thing is, that futures trading today is one of the last undeveloped frontier areas of the business world. Districts, where is the brave trader must rely solely on his own skill and common sense, where he must be brave and ready to face huge personal challenges, where tasks require intelligence, Fortitude, character and love of adventure and where the reward justifies the risks.
Personal Futures Trading – one of the last remaining areas, where an individual can still build a significant fortune, starting with a modest investment. Not surprising, that so many are trying to do it, although just as many fail. Not surprising, that many of those who fail blame the task itself, not your own discrepancy. Not surprising, that the successful become obsessed with this adventure. And no wonder, that so few know about it, because as in any border area, the unknown seems frightening, confusing and frightening. AND, like most important things, the challenge is huge and fraught with risk. For these reasons, there are many myths about futures trading.: you must have intuition; you have to be lucky; this is for professionals only; you have to be a player; in fact there is no rhyme for this, no reason. These myths are false. Often these myths are used as excuses and alibis by those, who for a number of reasons, quite personal, failed in futures trading. Maybe, they did not know how to concentrate or did not have sufficient analytical skills; maybe, they lacked a balanced personality, mature character or business discipline. Others fail, because they lack adequate capital; but capital, although important, usually not a central root cause, by which people fail in trading.
Let's take the element of luck. Futures Trading – one of the few areas, where luck is minimal. Though luck never hurts (and on occasion – as in all matters – can play an important role), she, usually, not acting factor. Luck can lean towards that, and the other way, and usually equals. And good luck can have an adverse effect too. For example, trader, lucky in his early trading experience, or does not learn anything, or is learning the wrong one, what you need. In the end, an early streak will let him down.
In the final analysis, success in futures trading is determined by a person's ability to decipher and analyze material facts and statistics in order to arrive at a logical opinion about the intermediate or final price of a given product. Shortly speaking, it depends on the ability to correctly measure supply and demand.
If it sounds simple, this is not true! This is the hardest task. The components of this call are the following stringent requirements: know the essential economic components, that may affect the price of this product; keep abreast of current facts and statistics; comprehend these facts and their impact on supply and demand; correctly assess the importance of various components in relation to a given price structure – attitude, changing from year to year, sometimes from week to week, as well as from futures to futures; understand the different price characteristics of various commodity futures; correct for all unknown variables, finally, have the courage to apply your findings in the marketplace.
This is the last requirement – the courage to apply your findings to the market – becomes Waterloo for most futures traders. This is the moment, where your personality faces its biggest challenge, and you will find out, what type of trader are you really. Really, the psychological structure of a trader is the most important component of his success in futures trading.
Although special education and vocational training will not get in the way, they are optional. Hints and inside information are of little value. An orderly thought process is needed, business approach, well balanced personality, willingness to learn important factors and working knowledge of past history. AND, certainly, patience. A trader needs patience, to learn from trading experience, patience to learn from past mistakes and patience to build self-confidence and trading skills. These are not simple props, and yet they are possible and not so difficult, to justify taboos or prohibitions, imposed by so many on this promising area.
Rules of odds or probabilities – normal tools of good gamblers – not required for futures trading and can be a noticeable disadvantage. Successful professional futures traders, usually, not players in the classical sense; In most cases, when players try their skills in futures, they are losing. The reasons for this are very simple.. Futures prices are dictated by the laws of economics, while successful gambling is a consequence of the rules of chance. These two modes are light years apart.. The rules of chance in the long run cannot be successfully applied to trading. Good rate, based on chances in other areas of life, may be the worst choice in futures trading. Bad chance, in terms of probability, could actually be a terrific futures position. For example, in a prolonged bear market, the clear odds will be in favor of a recovery; Unfortunately, if oversupply continues to dictate price reductions, they, who buys the market, based on probabilities, lose money.
I have often heard a statement: “I had to liquidate my long position, because the market has been growing for ten days in a row”. These traders apply the rule of probabilities to trading.. Although sometimes this decision may turn out to be the right one, it's far from the right reason. Long position may be the best position on the eleventh day, than she was at first; maybe, on the eleventh day the world, finally, admits that, that the trader's instincts told him ten days earlier. In this way, the rule of probabilities cannot be a guiding factor in making a market decision.
Successful futures traders – they are good businessmen and good money managers. Although traders risk their capital, they, who succeeds, follow conservative and disciplined business practices. In this way, money management is extremely important for correct market behavior. Unfortunately, this principle is somehow missed by the public, and futures exchanges are instead often equated with casino gambling.
I am often asked, how much money is needed, to start trading. It's not really so much about the amount of capital required., how much is the question of the type of capital. Although I wouldn't recommend it., you can start trading futures with such a small amount, like a couple of thousand dollars – minimum margin requirement, if the brokerage firm agrees to open an account for you (rules, concerning the amount of capital, necessary for futures trading, have changed significantly since, how this essay was written in 1969 year. The amount of required margin capital was influenced by inflation, type of products available and price volatility). Amount of capital, available to start trading, will determine the trader's freedom of maneuver in the process of studying. Having a small amount, it has little room for error. With a larger amount, he has more time, in order to study. More important, than the amount of money, then, so that it is not necessary money. A trader should not speculate with capital, necessary to ensure a daily living wage, that is, money to pay for food and housing, school or clothing, or any other normal life request. Capital, recommended for futures trading, “risk capital”: this money, if they are lost, should not significantly affect the standard of living of the trader. Although this precondition excludes a great many from futures trading, it still leaves the door open to many others..
Will a large amount of risk capital give a better chance of success?, than a small amount? Yes, in the sense that, that it will provide more space for study. However, a large amount of capital can create a false sense of security., which will ultimately damage your ability to succeed. Depending on whether, you start with a large or small pool of risk capital, you must adjust the size of your futures position accordingly: with a small amount you should start trading on a very small scale; vice versa, with a large amount, you can start with large positions. Anyway, should move forward at this pace, that after that, how will you learn to trade, some risk capital left. There will be no sense, if a, having met all the dangers and learned all the lessons, you will be left without funds, which could be used, to make your knowledge work.
Since it takes years of study and direct experience, to fully understand all the principles, Rules, varieties and exceptions, related to successful futures trading, it is impossible to discuss them here in detail. However, the following three principles are the most important.
Firstly, take the time to study the product, which you plan to trade; that is, various statistics and other factors, affecting the equation of supply and demand, hence, product price. This requirement includes inference: you cannot rely solely on someone else's opinion. For example, if you use the services of a broker, never take his words as gospel. Although you have to listen to something, what can he say, because he is an expert, it would be foolish of you to rely solely on his information or interpretation of facts. Besides, you must fully understand the jargon and reasoning of the broker, which again requires some personal education.
The second most important principle – do not overtrade. It cannot be determined in monetary terms or in the number of transactions per week, month or year. It will depend on your proximity to the market. – how closely can you track price movements, how much time will you spend studying the product and what are the goals of your trading plan. Excessive trading will expose you to unnecessary risk and danger, will cost you unnecessary commissions. In this way, you have to agree, that you cannot participate in every market movement, and you do not need to strive for this. The most successful trader does not appear on the trading floor of the exchange every day, he carefully chooses the moments to trade. Futures prices are trending in the same way, as seasonal movements. Concentrate on them, not on daily fluctuations, which are better left to professionals. Successful trader, judiciously choosing his steps, should be right only in 30-40 percentage of cases. For comparison, trader, not a member of the exchange and trying to trade on a daily basis, must, to stay profitable, must have profitable trades in 60-70 percentage of cases.
The third principle is: you must follow a predefined trading plan; a set of rules or established guidelines, That, how do you think, workable, who have stood the test of time and who will guide your decisions. There is no single special formula or single set of trading rules. There are many. If you are not a professional trader, you will need a lot of study, to determine, which rules are most understandable to you and best suited to your character and your main vocation. Whatever they are., as soon as you choose your trading rules, stick to them. This will require discipline and will test your emotional qualities.. If you do not follow reasonable trading rules, then you will find yourself at the mercy of the whims of each market and become an easy prey for momentary stress. Extending the scope of this principle, i would warn you, so that you don't let successful speculation hit you in the head and force you to abandon your rules. Vice versa, if at first you are unlucky or fail, don't get discouraged and don't give up on sound trading principles.
Futures Markets Represent Financial Democracy. They offer an open marketplace for investment and speculation, where everyone has the right to their own opinion. Some opinions are qualified more, than others. How qualified will your, depends on you alone. This border area is still open to many Americans., who have courage and fortitude to know, what it is. This is the area, where the winners get satisfaction from consciousness, that they don't need to thank anyone for their success, other than their own intelligence, fortitude and abilities. And the reward can, certainly, justify the effort and associated risk.
