Most traders that fail and leave the markets never learn the lessons that the market was trying to teach them. In all likelihood there were four horsemen that rode through the trader’s account, leaving lost battles, pestilence, famine, and destruction in their wake. What brings this doom upon a trader’s account? It is the absence of risk management and a trading plan? Traders often learn their lessons the hard way, but it is possible to begin using the correct principles and methods.
Here is how you can keep from being trampled by the four horsemen:
Never ignore risk: Even the best traders in the world only have 50% win rates over the long term, and regularly have ten losses in a row. If you want to make it in trading, the key is to position size and set stop losses in such a way that your risk per trade is between 1/2% to 2% of your total trading capital. If you risk more of your trading capital than this per trade, it is only a matter of time before your capital is destroyed by a string of losses.
Always have a trading plan: Without a trading plan, you are not a trader, you are a gambler. You will starve your account of profits by trading with the odds stacked against you. With a trading plan, you can become the casino. You will have an edge over the other gamblers.
Follow what is happening: Unless you are a true psychic and can predict the future, then you need to rely on what is happening in the chart. Trends, support, resistance, moving averages and prices are facts. Once the disease of prediction infects you, your account will become sick and cough up profits.
Don’t let your ego trade: Your ego just wants to be right, it wants to brag, it wants to look good to your friends and fellow traders. The ego is a terrible trader, with trading based on what your ego demands leading to account destruction.
