The two key concepts to trading success are Risk Control and Money Management. It is a fact that about 95% of all Traders do not make money in the markets, in fact they lose money. The remaining 5% of Traders happily take the money from the losing Traders accounts and are among the wealthiest people on the planet.
The reason that most Traders fail is because they do not have any type of Risk Control and Do Not Follow a system of Money Management.
Many Traders decide to arbitrarily Risk more less of their Capital Based on how they feel about a trade, Whether they have been winning or losing lately, and How much money they want to Make, instead of carefully considering the mathematics of their actions and following a Trading Plan.
Mark Douglass in his Book Trading in The Zone identifies the essential word to best describe Trading as "Contradiction". The reason is because in the Trading Environment events are unlimited and continuous, there are no formal rules or regulations that govern our behavior. We must make our own rules. Then we must follow all of these rules ourselves. The Rules in the "Trading World" are directly contrary to all of the rules we learn in the "Real World" and to our own human emotions.
Most people are attracted to Trading because of this "Freedom" from having to work for a someone else, to be Creative, to work when and how they want, and to have the potential for eye popping income. However, These Freedoms do not Translate into how one must conduct themselves to operate a Successful Trading Business.
To be successful the Trader must develop a Mathematical system of allocating capital, controlling risks, and managing his account to generate a consistent stream of profits. This means you can't just make up your own rules as you go along, and decide to break your own rules when ever you want.
If the Trader does not have a Trading Plan and Specific Risk Control and Money Management Guidelines, it is only a matter of time before they lose all of their money.
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