Most traders focus only on winning, on making the big trade. It is much safer to think first about losing and how to manage and control losses. When you learn to ski, one of the first things your instructor will teach you is how to fall safely. Not knowing how to lose safely can result in catastrophic losses.
The following is a good sequence of steps:
1. Eliminate disastrous losses
2. Learn to lose properly
3. Learn when not to trade (look for higher probability trades)
4. Learn to ride winners
Once you master items one and two, you can focus on items three and four.
To achieve long-term success you must develop techniques for setting risk limits and dealing with inevitable losses. We must learn to embrace losses so that we can win.
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