Many traders only look at how to make money in Forex trading, and don't pay enough attention on how to avoid losing money. As you might guess by now, the real key to becoming a profitable trader is damage control.
Unfortunately, many people don't like to hear about this truth because it's not sexy or exciting. They think Forex trading is like gambling; fortunes can be made and lost in a single day. This is partially true, except that many more fortunes are lost rather than made.
And that's why this is one of the hardest concepts to practice in live trading. We are all so used to thinking that trading is an exciting activity, when true profitable trading actually involves a lot of hard work, analysis and risk management... hardly exciting at all!
How Winning Traders Trade
Winning traders always focus on both the winning and losing potential of every trade. To them, trading is a business. And as with any business, there are risks. No one can predict the future and the best thing anyone can do is to make an effort to measure the potential upside gains, given the downside risks. If the upside potential doesn't justify the downside risk, don't trade.
Good traders always ask themselves the question: "What's the worse that can happen in this trade?", or "Will I be able to take the potential loss?"
Winning traders actually focus more on the risks rather than the potential rewards. Damage control to them is more important than trying to make money.
And when you take care not to lose money, the profits will naturally come rolling in.
So How Should You Trade?
Just before you begin your trading day, you should always look towards one goal: To trade without suffering a loss. This should be your highest priority; your priority is not to make the most money. If you manage to not lose any money at the end of a trading day (even if you only break even), then you should congratulate yourself!
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