Your long term success as a trader depends on how you manage risk in the market. The golden rule of trading, "let your profits run and cut your losses short", is all about managing risk and taking measures to limit your losses. Risk is an essential part of trading and in order to protect your capital, you need to avoid risks that will put you out of business.

Risk and money management form the most critical parts of your trading plan. Just like any business, in order to survive, it needs to have a plan. This plan is individually based and is a blue print of your trading future. It should set out your trading style, goals and objectives, strategies and tactics and most importantly risk and money management.

When starting out amateur traders are mostly interested in entry methods, yet it is money management that is the key to survival. You can get almost everything else in your plan wrong, but if you have strict money management rules that you adhere to, then you are on the right path to success.

With every trade you undertake in the stock market you are opening yourself up to risk and 'you' are the only person that can control this. The key to controlling risk in the market is to use some simple money management techniques that aim to protect your trading capital and quantify your risk. You need to consider the following in your plan:

I have learned more about myself since trading the markets full-time than in any other career I have undertaken. I can say now that it has been a wonderful journey of self-discovery and inner growth, but during the first year it definitely did not feel that way. I would like to share with you the psychological journey that I went through in my first year of full-time trading and the steps that I undertook in the following year to improve myself.

There are a few trading rules that have stood the test of time and enable traders to trade profitably, yet a lot of people fail to follow them. The rules are no secret to anyone as you will find them in many trading books and other materials. The rules like 'cut your losses' and 'follow the trend' have worked for hundreds of years yet most people ignore them!

Money is something that affects people's emotions and your natural instincts with money will often encourage you to break some of the time tested risk management rules, for example 'cutting your losses' and 'keeping your trades small'. Most traders focus on making money and realising a loss goes against the aim of making money. Similarly, when you have a position that is performing strongly, a small part of you wants to sell that position to realise the profit. This is perfectly natural. Letting your profits run and not selling too early is also an important time tested rule, however because of the focus on money, some people can be very quick to sell shares when in a profitable situation.

If you find it difficult to accept an initial small percentage loss in a trade, what makes you think it is going to be easier later on to sell the shares when the position has lost 30% or more? Yet, when you consider the influence of trends in the market and how important it is that you manage risk, the best time to sell the shares is when you are faced with only a small loss.

The road to trade success is very long and colourful. There are many things to consider when trading and for many starting out, there is too much to remember. The best way to ensure that you follow your trading plan and do not cut corners is to develop a routine, preferably written down. If needed, you could write down your routine in the form of a list in a logical sequence, and tick off every item as you complete it. This way you can be guaranteed of completing everything that you should.

You have little hope of developing a routine if you have not developed your trading plan. Your routine will be a logical progression from your written trading plan, and it will facilitate the adherence to your trading plan. You should aim to develop a routine that will guide you through all of the necessary steps and which will stop you getting distracted by other matters.

Decision making heavily influences your trading success. Anything that can help you focus on the important decisions that need to be made should be considered. This is where your written routine or checklist can greatly assist.

A lot of beginning traders are under the mistaken assumption that if they have a back tested system, good preparation, a relaxed state of mind that they have an almost certainty of being successful.

If only it were that easy. All the preparation and the world does not guarantee effective performance. We still have to get in the water and start swimming with sharks. Your judgment, self-discipline and stress management techniques will all be tested on a regular basis once you begin trading.

There won't always be enough time to double check all your rules, so sometimes you're going to have to use your best judgment when the unexpected occurs.

This is the main reason why actual performance of traders varies from the statistics of mechanically back testing systems.

By measuring the difference between your performance and that of a theoretically mechanical system you can determine what affect your judgment is having upon your performance. You could call this the trader quality number and use it as the basis for judging your skill improvement.