We regularly get approached by clients who have incurred heavy losses in futures and options trading.

The most common reason why this happens is that they start trading without understanding the inherent risks in derivatives trading. They often run out of margin money whenever there is a huge movement in the markets, and they have no other option but to square off their position at a loss.

There are many other reasons why people make losses in derivatives trading. So today we will be talking about a few rules that you need to follow to increase your chances of making profits from futures and options trading.

Rule1: Difficult entry easy exit:

Many traders open trades at every opportunity without doing proper research and get stuck. To avoid such a situation, you need to do proper homework before executing every trade. This will give you an idea about the levels at which you should enter the trade.

Though this will make your entry difficult, we will surely be able to exit easily due to the research that we have done earlier.

Rule 2: Decide the exit before entry

Before executing a trade, you must decide the level at which you will exit the position, both when you are at a profit and a loss.

Rule 3: Limit your strategies

Never execute more than two to three strategies at a time. This will keep your mind stress free and give you ample scope to monitor the positions properly and exit at the right time.

Rule 4: Fund management

Do not block your entire trading capital while trading. Use a part of it and keep the remaining for meeting the margin calls in case your position runs into losses.

Rule 4: Never trade with borrowed funds:

If you trade with funds borrowed from others you will always be under pressure to repay the money. As a result, whenever the markets go against your view, you will panic and square-off your position at a loss. When you trade with your own funds, you will not be under any pressure to repay the money and can hold on to the positions longer.

Rule 5: Don’t over trade:

Always define your trading limits according to the maximum loss that you can bear. This will ensure that you do not over trade and stay within the risk that you have defined for yourself.

Rule 6: Follow profit and loss limits:

While trading you must always maintain strict stop losses and stick to the target levels irrespective of whether you are at a profit or a loss. If you are trading based on technical analysis, you must make your strategy after looking at the support and resistance level of the underlying.

Rule 7: Don’t panic:

It is always better to square off a trade whenever you are stuck and do not know what to do next. This will relieve you from the stress and you will be able to think about a fresh strategy with an open mind.

Rule 8: Be patient:

Many traders get very impatient whenever the position they have taken do not yield profits quickly. However, you must remember that every strategy takes time to show results. So, you will need to patiently wait for some time and allow sufficient time for the trade to yield the profit/loss.

Rule 9: Stay updated:

You need to regularly learn new things and look for new ideas on platforms like Google and YouTube. This will not only enhance your trading skills, but also give you good ideas about trading psychology, strategies, rules, and fund management. Spend 30 minutes to one hour on this every day, and over time your overall skillset will get enhanced remarkably.

Rule 10: Be practical:

Many traders incur losses in their initial trades and then spend the rest of the time trying to recover those losses as quickly as possible. Instead of doing this, you should be careful about deploying your remaining trading capital in the best possible way, so that the losses get recovered slowly and steadily.

If you take too many risks while trying to recover that initial loss you will find that whatever capital is left with you will also vanish due to the excess risk that you have taken

Rule 11: Limit trade quantity:

Generally, traders get greedy when they earn profits while trading and they keep increasing their traded quantity. If they earn a profit in one lot, they increase their trade to 5, 10 and 15 lots successively. Invariably this causes problems that they get stuck in one of the trades.

As a rule, do not increase the quantity when you make profits and stick to quantities whose risk you can digest easily.

Rule 12: Be social:

Whenever you earn profits you should keep some of it aside for charity. Spending the money on noble causes will fill your mind with positivity and you will be able to think much more logically and clearly.

So, these were the rules of trading that you must know. I am sure that you will earn good returns for the market if you follow these rules diligently. Keep these in mind and make them their habit to become a successful trader.

This article is for education purpose only. Kindly consult with your financial advisor before doing any kind of investment.