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Fontanills says being able to manage risk is difficult for a lot of traders as different strategies need to be used in specific markets at different times.

"As a trader, you must be aware of all the risks—as well as potential rewards—of every trade you place. Understanding the risks, and most importantly, learning how to intelligently protect yourself is essential to successful investing and trading. To achieve success, you must become an avid risk manager," he says.

George Fontanills is the co-founder of Optionetics, the world leader in options education. His reputation as the dean of options trading has led to numerous appearances on television and radio shows.

A retired hedge fund manager, Fontanills has written or co-written many books on trading, including the first edition of Trade Options Online, The Volatility Course, The Stock Market Course, The Index Trading Course, and The Options Course, Second Edition.

Fontanills wrote in his book some common characteristics of a desirable investment. He said finding promising trades is perhaps the most difficult issue to address when first starting out in the investment arena.

Let's look at a few characteristics of a desirable trade that can enhance traders ability to identify profit-making opportunities.

Fontanills says in order to find the best investment, traders have to look for trades that offer optimal risk-to-reward ratios.

"Every time you contemplate placing a trade, you need to create a corresponding risk profile. Whether you trade shares or commodities, invest in real estate, or put your money in the bank, every investment has a certain potential risk/reward profile. Some are more favourable than others. Studying a risk profile can show you the potential increasing or decreasing profit and loss of a trade relative to the underlying asset’s price over a specific period of time. As the variables change, the risk curve changes accordingly," he says

Fontanills says the risk goes hand-in-hand with reward and a trader cannot be expected to take a risk unless the reward is also in the equation.

He says the best investments have an opportunity for a high reward with acceptable risk and also the good trades have a high probability of winning on a consistent basis
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"Believe it or not, I have seen countless investors make foolish investments where the risk outweighs the reward many times over. Why would they do such a thing? Usually, because they simply haven’t taken the time to verify the potential risk and reward of the trade or they are taking advice from someone who doesn’t know any better," he says.

Fontanills says the process of locating and monitoring investments must meet the time constraints if investors want to achieve success.

"If you do not have the time to sit in front of a computer day in and day out, then your best investments will not be day trades. The time you have available for making investment decisions and monitoring those investments will affect the types of investments you should make. If you don’t have enough time to pay attention to a trade that needs to be closely monitored, chances are you’ll lose money on it. The best investments will match your time availability," he says.

Fontanills says the risk tolerance level is directly proportional to the available investment capital.

"Risking more than you can afford to lose creates stress that impairs your ability to make clear decisions. Some people have the ability to handle uncertainty better than others. It is important to accurately assess your own risk tolerance levels and stay within those boundaries as you progress up your own trading learning curve. As experience in the markets naturally develops your confidence level, your risk tolerance level will increase," he says.

Fontanills says one of the most basic investment rules is, "If you don’t know how hot the fire is, don’t stick your hand into it."

"This rule is broken on a consistent basis by many beginning and intermediate traders. In addition, many seasoned traders singe their fingers as well. Basically, if you don’t understand the exact characteristics of a trade, it is better to walk away from it," he says. He says it is imperative that traders familiarize themselves with the trades they place.

"Each trade has a unique personality. Your personality and your trade’s personality have to match for you to be successful over the long run," he says.