Your 3 Simple Steps to Trading Success in 2018
Legendary investor Peter Lynch spent 70 hours a week at the office.
He figured that if he spent 20 extra hours a week poring over financial reports, he’d be able to outperform other funds.
But you don’t need to spend countless hours in front of a computer screen to beat the market.
In fact, you could build your trading portfolio in just five minutes a day.
I know that sounds nuts. But hear me out! I can show you how to get there in just three easy steps…
First, we have to reset your brain. After all, you’re conditioned to believe that investing is a lot of work. And if you’re purely a fundamental investor, it certainly can be. When you’re scouring the news looking for anything that could impact a company’s financial performance, or when you’re trying to manage a portfolio of more than 1,600 stocks (like Peter Lynch over at Fidelity), then it’s no surprise that investors can make a full-time job out of watching the markets.
But trend following doesn’t have those same requirements.
It’s time to free up your day with three simple steps to build trend following success.
Let’s get started…
Step 1: Cut the Noise
As a trader using a trend following system, you can ignore the news. Tim Ferriss, the author of the best-selling 4-Hour Workweek, calls it an “information diet.”
Frankly, I don’t know anyone who’s gotten rich trading the news from The Wall Street Journal. That’s why you should just put it down unless you’re looking for entertainment.
Traders use price as their primary input. That’s because prices react to news almost instantly — well before a journalist has a chance to write a story about it. In effect, price already has the news baked in. That’s why you should skip the Monday morning quarterbacks in the media and focus just on price.
For most individual investors, cutting out the noise is the biggest step you can take toward trimming your investment workload down to five minutes a day.
Step 2: Stop Searching for Stocks
Scouring the market for stocks is another huge time sink for investors. There are more than 8,700 stocks trading in the U.S. alone. Narrowing this investment universe down to the very best plays is a big task.
That’s why we like to grab onto bigger trends by trading ETFs that give you exposure to a basket of stocks in a particular sector or industry. Creating a concentrated portfolio of ETFs is the perfect way to establish your core holdings — the building blocks of your trading portfolio.
Once you’ve established your core holdings, you can begin to narrow your focus to individual stocks you can play to capture shorter-term momentum moves.
Step 3: Think Like a Trader
Each time you hit “buy” or “sell,” you must have faith that your trades will work out in the end. But I’m not talking about blind faith.
Trend traders have faith in their strategies because of performance testing — if you know that your trend system can thrive during recessions, depressions and roaring bull markets, then your faith is warranted.
Since you’re trying to spot trends early on, it’s understandable that you’ll have false starts. But trend following can be hugely profitable because the big trends that you hit a third of the time more than make up for the tiny losses you’re taking two-thirds of the time.
You must be able to think like a trader to mentally shake off the losses and stick around to take advantage of those long-run gains. A hands-off approach to investing takes some faith, but it can be lucrative.
Putting it All Together…
Obviously, developing a trend following strategy takes time. The backtesting, statistical tests and performance analysis involved make for more than a full-time job. But that’s why I’m here. For an individual investor putting a finished strategy to work in his portfolio, all it takes is around five minutes a day of “work.” Sometimes less.
If you don’t want to spend a lifetime researching stocks, that’s a game changer. Especially when you consider the fact that any good trend following system can beat the market by a broad margin.
We’ll dive into some more big trend trades for 2018 in the weeks ahead. In the meantime, do yourself a favor and peel your eyeballs away from your computer screen.