Ask Colin

When I paper trade futures with a 10-point stop-loss and small capital it is OK, but not when I actually trade. Can you help?

The first problem you have is that you are using a fixed point stop. This is an invitation to have your stop hit in quite normal trading. Fixed stops are actually a very risky way to trade.

It is much more sensible to set your stop using technical analysis. Some good ideas are below support levels or moving averages or good trend lines. I use support levels myself, because I know that the level should hold, otherwise something has changed and I want to get the hell out of the trade.

If there is a support level at 3000 that has been tested many times and you buy at 3011 with a 10 points stop, the market could come back to 3000 quite normally and take your stop out. Having a 10 point stop at 3001 is actually more risky than having a 15 point stop at 2996.

However, bear in mind that everyone knows stops are just below support levels, so do not put them too close, otherwise locals and day traders will run your stops all the time. It is great sport - sell down to one or two points below support, you get filled because the stops are there. If there is no good reasons for the market to be down there, there will be no more business to be done there and prices will rise, giving a good profit.

The other problem you mention is that you have a small account. Most traders fail because they are undercapitalised. Unless you have a minimum $50,000 in your account (that is a small account!), then you have to take much larger than sensible risks. You must be very patient and only take low risk trades with close stops.

I don't understand why your paper trades succeed and your live trades don't unless:

1. You are not trading the same way on paper and live. Try getting someone to "audit" what you are doing against your trading plan. A disinterested observer may spot the difference.

2. The market you are trading is very thinly traded and there are no stops in your normal position when you are paper trading, so they don't get hit. This is just a guess.