Futures systems start with whether to trade

Whether to trade comes first

The opening decision is whether to trade futures at all, not which tactic to use. Many newcomers arrive for easy-money motives and skip downside preparation.

Capital, leverage, and the speculative sleeve

Futures are placed in the speculative category, apart from growth, income, and inflation-hedge vehicles. An account can lose more than the cash posted. That speculative sleeve is the high-risk, high-variance portion of capital and is kept separate from those other holdings.

Two capital screens are stated together: keep speculation at or below 10 percent of net capital, and fund a self-directed account with at least 10,000 of pure risk capital, which implies about 100,000 of net worth. Pure risk capital is funds whose total loss would not change current living costs.

A Treasury-bond illustration posts about 3,000 of margin against 100,000 of notional, or about 33-to-1 leverage, so a 3 percent price move can erase or double that margin.

Loss tolerance as a rule input

A readiness screen asks whether the operator could discard 10,000 in cash and resume ordinary life. Failing that screen does not forbid trading, but it requires owning the risks and the outcomes.

A trading psychology process treats fear, greed, hope, and loss tolerance as rule inputs that can allow, delay, or forbid a trade.

Identify the present trend

No person, committee, indicator, or wave count is treated as a consistent top-and-bottom predictor. The usable task is to identify the present trend instead of trading on forecast hope. Signals are read only on a trend window, the holding horizon chosen in advance.

Win rate is treated as a weak score. What matters is whether dollars from winners exceed dollars from losers. Capping each loss is what keeps the next signal tradable.

Six answers before any order

A complete plan must answer six items before any order: which markets, entry rules, profit-exit rules, loss-exit rules, capital at risk per trade, and a cap on margin use. That written pre-trade list is the checklist process and must be complete before any order.

A plan that still needs a morning gut call about the day's big move is judged not to be a usable roadmap. After capital and written rules, the remaining failure mode is not following that plan without exception. A mechanical trading system uses objective entry, exit, and abstention rules that can be followed without those daily gut calls.

Four operating rules

Four operating rules are specified: trade only with the trend on a prechosen horizon, cut losses, let profits extend, and do not abandon large open gains ad hoc.

The last two are reconciled by fixing a preplanned exit before entry, such as a trailing stop, target, or time stop, then applying that method the same way on every trade.