Okay, traders – Do you know the most important aspect of successful futures trading? Is it identifying the trading opportunity? Is it proper entry into the market? Is it the trading “tools” you are using? Is it the exit strategy? The answer is – none of the above (although an exit strategy is close). The most important factor in successful futures trading is money management. It is still important to be savvy at chart forecasting and/or fundamental analysis, but it is the money-management factor that will make or break a futures trader. The huge leverage involved in trading futures absolutely requires pinpoint accurate money managing.

Over the years, I have listened to the best traders in the business talk about what makes them succeed in this challenging arena. Nearly every one emphasizes the importance of sound money management. A few years ago, I attended a Technical Analysis Group trader's conference in Las Vegas. One of the featured speakers stressed that becoming a successful futures trader should be more an act of survival in the early going than scoring winning trades.

Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts with a hot hand eventually finds that at least some trades will not go his way. If he has not employed good money management principles on those losing trades, he will likely squander his trading profits and his entire trading account.

Conversely, the novice trader who uses sound, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is a key to survival – and ultimate success – in futures trading.

Here is an important point to consider, regarding money management and successful futures trading. Most successful futures traders will tell you that during the span of a year, they have more losing trades than winning trades. If that is the case – why are they successful? The reason is good money management. Successful traders set tight stops to get out of losing positions quickly and they let the winners ride out the trend. On the profit and loss statement, a few large winning trades will more than offset the more numerous smaller losers. Good money management allows that to happen.

This is an excerpt from January 2010 issue of Trader's Journal.