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Three Simple Keys to Trading with Confidence

By Costas Bocelli May 5, 2011 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Since joining TycoonU as a financial educator and trading mentor, I get asked all sorts of questions.  From the newbie investor just beginning their journey, to the seasoned hard core trader with years of experience who is very active in the market, I hear from them all.

But as diverse as this group may be, I get asked the same question all the time:

"Costas, what's your secret to trading successfully and making money consistently in the markets?"

Expecting to hear some elaborate incantation or impatiently waiting for me to scribe a mathematical algorithm that magically portends future stock prices on the classroom white board, I firmly respond:

Don't over-complicate it, just trade what's in front of you.

The reaction and response to my answer is always priceless.

It's like the first time they realized there was no Santa Claus.  All the anticipation and mystique goes straight out the window.  "What, that's it?!"

In a nut shell, that is it!  Obviously there is a process, strategy and a general game plan that goes along with it, but essentially, most successful investors that I learned from and have come to know keep it very simple.

The message is so powerful and true to heart, that it's the mantra of my new course, the Channel Trading System, which was launched earlier this week.

In fact, if you follow these three simple keys, you'll be able to trade and invest in any type of market environment with firm conviction and confidence.

Key #1:  Cash is a Trade

One of the most powerful lessons you can learn is how to be patient when it comes to the financial markets.  You must think of your investing as one long, continuous journey with flashes of flurry and rest.

You strike with plenty of activity and action when you feel you have the "best of it" and sense that the opportunity is ripe.  And you recede into cash, or trim your market exposure, when you're unsure and your clarity is clouded.

That's right -- you overweight in cash and keep your powder dry until the market shifts and shows you the path to high probability outcomes.  Markets are very dynamic, and the landscape is constantly changing.  You simply want to put your money at risk only when you feel the conditions are favorable.

So, when in doubt, sit out.

Key # 2:  Don't Over Leverage

This can literally be a game killer.  Unfortunately, I've witnessed far too many times firsthand the effects of financial ruin from investors simply over leveraging or putting excessive capital at risk.

This is a position I would not wish on my worst enemy, as the repercussions in many cases extend far beyond the financial losses.  Emotional distress and destruction to personal relationships no doubt are the most common side effects.

The reality is that this can easily be avoided, and protecting your assets from catastrophic financial risk should be paramount before investing $1 in the market.

If you can't quantify your risk within a reasonable scope, you need to take a step back and understand why.

The easiest way to protect yourself from excessive risk is to simply diversify your assets.  Essentially, don't put all your eggs in one basket, so if you happen to slip and fall by chance, they don't all crack.

The bottom line is that you'll act on many trading ideas, and not all of them are going to work out like you've planned.  Sometimes you may be way off base -- it happens.  But don't let the positions that happen to go awry financially cripple you; that's the quickest way to the exit door.

Trade with your head -- and not over it.  Simply keeping your emotions in check will allow you to make better, smarter decisions while ensuring your solvency.

Key #3:  Remove the Fear

Putting real money on the line, especially for newbie investors, can cause elevated anxiety.  I can certainly relate, as we've all been there as novices to the markets at some point.

But what you have to realize is that investing and trading doesn't have to be scary, and there are several ways to position yourself in the market that can afford you literally around-the-clock protection of your overall capital.

What I am referring to is trading options instead of directly trading stocks and ETFs.  You can truly define your risk before entering any position, and you can outlay less money while potentially generating greater returns.

By learning a couple of easy option strategies, you can remove nearly every unexpected risk, such as the May 6 flash crash last year that took billions of dollars from unsuspecting investors.  Tomorrow marks the 1 year anniversary of when the liquidity breakdown crashed the markets.  Even if you were a disciplined stock trader with well placed stop-losses on the book as protection, you came to realize really fast how much real protection they can truly offer you in times of panic and gaps in prices.

The reality is that if you would have structured a similar position using an easy-to-understand options strategy, the outcome in most cases would have played out much differently on that day.

The point here is that simply learning the basics about options and applying a couple of easy to use strategies can remove the fear of big unexpected losses and let you sleep well at night, knowing that your positions are fully protected and your risk is truly defined to a maximum limit.

Complete control is a powerful equalizer against fear.

At the end of the day, successful investing doesn't have to be brain surgery, if you follow these three simple keys:

1.  Exercise patience and pick your spots

2.  Trade within your means and keep emotions in check

3.  Employ fully hedged strategies that require less capital, generate higher returns, and define your risk

You'll be way ahead of the game, and in a great position to profit for a very long time!

Remember, don't over-complicate it -- trade what's in front of you.