What wins championships in football?
It is said to be a great defense is the main component of a championship football team. In football you win by scoring more points than the opposing team, this is much easier on the offensive side of the ball for a team if the defense keeps the score low. That way the offense is not always playing catch up from the last score, so it can actually stick with its game plan and win.
So what makes a great trader? Someone who plays great defense by limiting losses. It makes no difference if you made $10,000 in a few weeks with one great big trade if you give it right back a month later with one big bad bet. Rich traders play great defense by using stop losses to determine when they are wrong and trailing stops to know when it is time to take money off the table. Through letting winners run and cutting losses short they limit the money taken from them and maximize the money they take from the market. By limiting losses to preset risk management guidelines it is much easier to follow your trading plan when you are not playing catch up with huge equity drawdowns. This is how rich traders win, they play great on both sides of the ball.
