Bruce Kovner is one of the world's most successful traders. The following below is extracted from his Market Wizards interview:
"A greedy trader always blows out. I know some really inspired traders who never managed to keep the money they made. One trader at Commodities Corporation - I don't want to mention his name - always struck me as a brilliant trader. The ideas he came up with were wonderful; the markets he picked were often the right markets. Intellectually, he knew markets much better than I did, yet I was keeping money, and he was not."
Q: So where was he going wrong?
"Position size. He traded much too big. For every one contract I traded, he traded ten. He would double his money on two different occasions each year, but still ended up flat".
And, from further on in the interview:
"First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they risk three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks."
Prudent risk control, combined with the power of compounding, can lead you a long way in this game.