THE FUTURES TRADING PLAN

How does an E-mini® S&P 500® futures trader know when to buy and sell? To put it simply, by following a trading plan. Just as a business plan outlines the details of a proposed business, a trading plan outlines a structure for trading. The Emini trading plan specifies when to get into a trade, either long or short, and when to close a trade, either at a profit or loss. This trading plan can be developed from scratch or learned through courses or books.

The principal requisite of a trading plan is that it be profitable overall. This does not mean that every trade need be a winner. Rather, the relative size and frequency of losses and gains must be such that, over time, a net profit results. For example, assume that only half of the trades of an Emini S&P 500 trading plan are profitable. If the average profit exceeds the average loss, then overall trading will be profitable.

An Emini trading plan can be discretionary or systematic. Discretionary plans rely solely on the "gut feeling" of the trader. For a variety of reasons, most Emini traders have gravitated to using some type of systematic plan.

Systematic trading plans quantify the conditions or criteria for a trade signal to be generated with the intent of eliminating the discretionary element from the trading decision. In many cases, the plan builds upon the study of technical analysis with the goal of identifying a proprietary trade indicator that gives an edge over other traders. Many systematic trading plans are programmed via computer to run continuously and automatically generate a buy or sell signal for the trader. In some cases, it may even be possible to interface the trading program directly with the trading platform so that trades are executed without even requiring the trader's intervention.

Whatever type of trading pan is used and regardless of its origin, it should be first tested under simulated but real-life conditions prior to risking actual dollars. This will also enable the Emini trader to develop some skill in implementing the plan. While the profitability and consistency of a discretionary plan depends entirely on the trader, a systematic plan can be back-tested on historical data to provide an indication of performance. It can then be amended, if necessary, in an attempt to improve overall profitability.

There are no guarantees of profitability in the world of futures trading, but the discipline of a trading plan goes a long way toward making a trader successful.