book

Trading for Dummies® 2nd Edition

Name: Trading for Dummies® 2nd Edition
ISBN: 9780470438404

by Lita Epstein, Michael Griffis

June 2009

Beginner

382 pages

9h 38m

English

For Dummies

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Copyright
About the Authors
Acknowledgments
Publisher's Acknowledgments
Introduction
About This BookFoolish AssumptionsHow the Book Is OrganizedPart I: So You Want to Be a Trader: Gathering Your ToolsPart II: Reading the Fundamentals: Fundamental AnalysisPart III: Reading the Charts: Technical AnalysisPart IV: Developing Strategies for When to Buy and Sell StocksPart V: Risk-Taker's ParadisePart VI: The Part of TensIcons Used in This BookWhere to Go from Here
I. So You Want to Be a Trader: Gathering Your Tools
1. The Ups and Downs of Trading Stocks
1.1. Trading versus Investing1.2. Why Trade?1.3. Successful Trading Characteristics1.4. Tools of the Trade1.5. Taking Time to Trade More than Just Stocks1.5.1. Position trading1.5.2. Short-term swing trading1.5.3. Day trading1.6. Going Long or Short1.7. Managing Your Money1.8. Understanding Fundamental Analysis1.9. Getting a Grip on Technical Analysis1.10. Putting Trading Strategy into Practice1.11. Trading at Higher Risk1.12. Remember: Have Fun!
2. Exploring the Markets and the Stock Exchanges
2.1. Introducing the Broad Markets2.1.1. Stock markets2.1.2. Futures markets2.1.3. Bond markets2.1.4. Options markets2.2. Reviewing Stock Exchanges2.2.1. New York Stock Exchange (NYSE)2.2.1.1. The specialist2.2.1.2. The floor trader2.2.1.3. The specialist's book2.2.1.4. Open outcry2.2.1.5. NYSE Hybrid Market2.2.2. NASDAQ2.2.2.1. Market makers2.2.2.2. Over-the-counter and bulletin-board stocks2.2.3. Amex2.2.4. Electronic communications networks (ECNs)2.3. Understanding Order Types2.3.1. Market order2.3.2. Limit order2.3.3. Stop order2.3.4. Stop-limit order2.3.5. Good 'til canceled orders2.3.6. Other order types
3. Going for Broke(r): Discovering Your Brokerage Options
3.1. Why You Need a Broker3.2. Exploring Types of Brokers and Brokerage Services3.2.1. Full-service brokers3.2.2. Discount brokers3.2.3. Direct-access brokers3.2.4. Proprietary trading firms3.2.5. Futures brokers3.3. Services You Should Consider When Choosing Your Broker3.3.1. Types of orders supported3.3.2. Data feed3.3.3. Charts3.3.4. ECN access3.4. Understanding the Types of Brokerage Accounts3.4.1. Cash accounts3.4.2. Margin accounts3.4.3. Options3.4.4. IRAs and other retirement accounts3.5. Choosing the Right Broker for You3.5.1. Considering more than price3.5.2. Doing a little research3.5.3. Understanding how you'll be paying3.6. Getting to Know the Rules3.6.1. Margin requirements3.6.2. Settling trades3.6.3. Free riding
4. Putting Your Computer to Work: Your Key Business Tool
4.1. Making Use of Your Computer4.1.1. Identifying trading candidates4.1.2. Managing your account4.1.3. Improving your trades4.2. Finding Price Charts4.2.1. Internet charts, delayed prices4.2.2. Internet charts, real-time prices4.2.3. Charting software4.3. Finding Fundamental Information4.4. Finding Analyst Reports4.5. Selecting a Trading Platform4.5.1. Browser-based trading environment4.5.1.1. Pros4.5.1.2. Cons4.5.2. Integrated trading platforms4.5.2.1. Pros4.5.2.2. Cons4.6. Determining Computer Requirements4.6.1. Decisions, decisions . . .4.6.2. Configuring your computer system4.7. Accessing the Internet4.7.1. Connecting to the Internet4.7.2. Picking a browser4.7.3. Securing your computer

II. Reading the Fundamentals: Fundamental Analysis
5. Fundamentals 101: Observing Market Behavior
5.1. The Basics of the Business Cycle5.1.1. Identifying periods of economic growth and recession5.1.2. Relating bull markets and bear markets to the economy5.2. Sector Rotation5.2.1. Early recovery5.2.2. Full recovery5.2.3. Early recession5.2.4. Full recession5.3. Understanding Economic Indicators5.3.1. Fed watch: Understanding how interest rates affect markets5.3.2. Money supply5.3.3. Inflation rate5.3.4. Deflation5.3.5. Jobless claims5.3.6. Consumer confidence5.3.7. Business activity5.4. Using the Data
6. Digging Into the Critical Parts of Fundamental Analysis
6.1. Checking Out the Income Statement6.1.1. Revenues6.1.2. Cost of goods sold6.1.3. Gross margins6.1.4. Expenses6.1.5. Interest payments6.1.6. Tax payments6.1.7. Dividend payments6.1.8. Testing profitability6.2. Looking at Cash Flow6.2.1. Operating activities6.2.2. Depreciation6.2.3. Financing activities6.2.4. Investment activity6.3. Scouring the Balance Sheet6.3.1. Analyzing assets6.3.2. Looking at debt6.3.3. Reviewing goodwill6.4. Determining Stock Valuations6.4.1. Earnings6.4.2. Earnings growth rate6.5. Figuring Your Ratios: Comparing One Company's Stock to Another6.5.1. Price/earnings ratio6.5.2. Price/book ratio6.5.3. Return on assets6.5.4. Return on equity
7. Listening to Analyst Calls
7.1. Getting to Know Your Analysts7.1.1. Buy-side analysts: You won't see them7.1.2. Sell-side analysts: Watch for conflicts7.1.3. Independent analysts: Where are they?7.2. The Importance of Analysts7.2.1. Tracking how a company's doing7.2.2. Providing access to analyst calls7.2.2.1. Company-sponsored calls7.2.2.2. Independent analyst–sponsored calls7.3. Listening to Analyst Calls7.3.1. Understanding the analysts' language7.3.2. Developing your listening skills7.3.2.1. Earnings expectations7.3.2.2. Revenue growth7.3.2.3. Analysts' moods7.3.2.4. Just the facts, ma'am7.3.2.5. The future7.3.2.6. Employee satisfaction7.4. Locating Company Calls7.5. Identifying Trends in the Stock Analyst Community
III. Reading the Charts: Technical Analysis
8. Reading the Tea Leaves: Does Technical Analysis Work?
8.1. Understanding the Mythology8.2. Understanding the Methodology8.2.1. Finding everything in the price8.2.2. Price movements are not always random8.2.3. Balancing supply and demand8.2.4. Understanding where you've been8.2.5. Understanding where you're headed8.3. Answering the Detractors8.3.1. Walking randomly8.3.2. Trading signals known to all8.4. Telling Fortunes or Planning Trades
9. Reading Bar Charts Is Easy (Really)
9.1. Creating a Price Chart9.1.1. Creating a single price bar9.1.2. Measuring volume9.1.3. Coloring charts9.2. Identifying Simple Single-Day Patterns9.2.1. Single-bar patterns9.2.2. Reversal patterns9.3. Identifying Trends and Trading Ranges9.3.1. Identifying a trading range9.3.2. Spotting a trend9.3.3. Time frame matters9.4. Searching for Transitions9.4.1. Support and resistance: Not just for undergarments9.4.2. Finding a breakout9.4.2.1. Waiting patiently for winning patterns9.4.2.2. Fine-tuning your trading-range breakout strategy9.4.3. Sipping from a cup and saucer9.4.4. Deciding what to do with a double bottom9.4.5. An alternative double-bottom strategy9.4.6. Looking at other patterns
10. Following Trends for Fun and Profit
10.1. Identifying Trends10.2. Supporting and Resisting Trends10.2.1. Drawing trend lines to show support10.2.2. Surfing channels10.2.3. Trending and channeling strategies10.3. Seeing Gaps10.3.1. Common gap10.3.2. Breakout or breakaway gap10.3.3. Continuation gap10.3.4. Exhaustion gap10.3.5. Island gap10.4. Waving Flags and Pennants10.5. Withstanding Retracements10.5.1. Three-step and five-step retracements10.5.2. Dealing with subsequent trading ranges10.6. Dealing with Failed Signals10.6.1. Trapping bulls and bears10.6.2. Filling the gaps10.6.3. Deciding whether to reverse directions
11. Calculating Indicators and Oscillators
11.1. The Ins and Outs of Moving Averages11.1.1. Simple moving average11.1.2. Exponential moving average11.1.3. Comparing SMA and EMA11.1.3.1. Consistency11.1.3.2. Reaction time11.1.3.3. Sensitivity11.1.4. Interpreting and using moving averages11.1.5. Support and resistance factors11.1.6. Deciding the moving average time frame11.2. Understanding Stochastic Oscillators11.2.1. Calculating stochastic oscillators11.2.2. Interpreting stochastic oscillators11.3. Discovering MACD11.3.1. Calculating MACD11.3.2. Using MACD11.4. Revealing Relative Strength11.4.1. Calculating relative strength11.4.2. Putting relative strength to work
IV. Developing Strategies for When to Buy and Sell Stocks
12. Money Management Techniques: When to Hold 'em, When to Fold 'em
12.1. Identifying Important Characteristics of a Successful Trader12.2. Opening the Door to Successful Trading12.3. Managing Your Inventory12.3.1. Thinking of trading as a business12.3.2. Recognizing the trader's dilemma12.3.2.1. Falling in love12.3.2.2. Breaking up is hard to do12.3.3. Finding a better plan12.3.3.1. Picking stock for the seasons12.3.3.2. Cleaning out the stock12.3.3.3. Keeping your inventory current12.4. Protecting Your Principal12.4.1. Recovering from a large loss: It ain't easy12.4.2. Setting a target price for handling losses12.4.3. Determining good trading candidates12.4.4. Strategies for handling profitable trades12.4.4.1. Breaking the pattern of higher highs and higher lows12.4.4.2. Using trailing stops12.4.4.3. Tracking market indexes12.5. Understanding Your Risks12.5.1. Market risks12.5.2. Investment risks12.5.3. Trading risks
13. Using Fundamental and Technical Analyses for Optimum Strategy
13.1. Seeing the Big Picture13.1.1. Knowing when the Fed is your friend13.1.2. Keeping an eye on industrial production13.1.3. Watching sector rotation13.1.3.1. Anticipating a new bull market13.1.3.2. Watching the economy rebound13.1.3.3. Approaching a market top13.1.3.4. Weathering a bear market13.1.4. Finding the dominant trend13.1.4.1. Looking at weekly index charts13.1.4.2. Using the bullish percent index13.2. Selecting Your Trading Stock13.3. Trading Strategies13.3.1. Trading the bullish transition13.3.2. Trading in a bull market13.3.3. Trading the bullish pullback13.3.4. Trading the bearish transition13.3.5. Trading in a bear market13.3.6. Trading the bearish pullback13.3.7. A hypothetical trading example
14. Executing Your Trades
14.1. Entering and Exiting Your Trade14.1.1. Understanding bid and ask14.1.2. Understanding the spread14.1.3. Devising an effective order-entry strategy14.1.3.1. Using limit orders14.1.3.2. Using stop orders and stop-limit orders to enter a trade14.1.3.3. Using stop orders to exit positions14.1.4. Level I, Level II, and TotalView data14.1.5. Entering orders after the market closes: Be careful14.1.6. Reviewing a week in the life of a trader14.2. Selling Stocks Short14.3. Avoiding Regulatory Pitfalls14.3.1. Understanding trade settlement dates14.3.2. Avoiding free riding14.3.3. Avoiding margin calls and forced sales14.3.3.1. Understanding margin fees14.3.3.2. Understanding margin collateral14.3.4. Avoiding pattern day trader restrictions14.4. The Tax Man Cometh
15. Developing Your Own Powerful Trading System
15.1. Understanding Trading Systems15.1.1. Discretionary systems15.1.2. Mechanical systems15.1.3. Trend-following systems15.1.4. Countertrend systems15.2. Selecting System-Development Tools15.2.1. Choosing system-development hardware15.2.2. Selecting system-development software15.2.2.1. Trading system–development and testing software15.2.2.2. Spreadsheet software15.2.3. Finding historical data for system testing15.3. Developing and Testing Trading Systems15.3.1. Working with trend-following systems15.3.1.1. Identifying system optimization pitfalls15.3.1.2. Testing with blind simulation15.3.2. Working with breakout trading systems15.3.3. Accounting for slippage15.4. Keeping a Trading Journal15.5. Evaluating Trading Systems for Hire
V. Risk-Taker's Paradise
16. The Basics of Swing Trading
16.1. Stock Selection Is Key16.2. Swing-Trading Strategies16.2.1. Trading trending stocks16.2.1.1. Trading pullbacks16.2.1.2. Surfing channels16.2.2. Trading range-bound stocks16.2.3. Trading volatility16.2.4. Money management issues16.3. Using Options for Swing Trading16.4. Getting a Grip on Swing-Trading Risks16.4.1. Taxes (of course)16.4.2. Pattern day-trading rules apply
17. The Basics of Day Trading
17.1. What Day Trading Is All About17.1.1. Institutional day traders (market makers and specialists)17.1.2. Retail day traders17.1.2.1. It's all about access17.1.2.2. Day-trading firms17.2. Understanding Account Restrictions17.2.1. The Fed's Regulation T: Margin requirements17.2.2. Settlement: No free rides17.3. Strategies for Successful Day Trading17.3.1. Technical needs17.3.2. Trading patterns17.3.3. Scalping17.3.4. Trend traders17.4. Risks Are High; Rewards Can Be Too17.4.1. Liquidity17.4.2. Slippage17.4.3. Trading costs17.4.4. Taxes (of course)17.5. Avoiding the Most Common Mistakes
18. Doing It by Derivatives
18.1. Types of Derivatives: Futures and Options18.1.1. Futures18.1.1.1. What's your position?18.1.1.2. Making money using futures18.1.1.3. Commodities futures18.1.1.4. Index futures18.1.1.5. Bond futures18.1.1.6. Stock futures18.1.1.7. Foreign currency futures18.1.2. Options18.1.2.1. Options lingo18.1.2.2. Option pricing18.2. Buying Options and Futures Contracts18.2.1. Opening an account18.2.2. Calculating the price and making a buy18.3. Options for Getting Out of Options18.3.1. Offsetting the option18.3.2. Holding the option18.3.3. Exercising the option18.4. The Risks of Trading Options and Futures18.5. Minimizing Risks
19. Going Foreign (Forex)
19.1. Exploring the World of Foreign Currency Exchange19.1.1. Types of currency traders19.1.2. Why currency changes in value19.1.3. What traders do19.2. Understanding Money Jargon19.2.1. Spot transactions19.2.2. Forward transactions19.2.3. Options19.3. How Money Markets Work19.3.1. Different countries, different rules19.3.2. The almighty (U.S.) dollar19.3.3. Organized exchanges19.4. The Risks of the World Money Market19.4.1. Types of risks19.4.1.1. Market risk19.4.1.2. Exchange risk19.4.1.3. Interest rate risk19.4.1.4. Counterparty risk19.4.1.5. Volatility risk19.4.1.6. Liquidity risk19.4.1.7. Country risk19.4.2. Seeking risk protection19.5. Getting Ready to Trade Money
20. Trading for Others: Obtaining Trading Licenses and Certifications
20.1. Getting to Know the FINRA Series20.1.1. Becoming a registered representative20.1.1.1. Series 3: National Commodity Futures20.1.1.2. Series 6: Investment Co./Variable Contract Representative20.1.1.3. Series 7: General Securities Representative20.1.1.4. Series 9 and 10: General Securities Sales Supervisor20.1.1.5. Series 22: Direct Participation Programs Limited Representative20.1.1.6. Series 42: Registered Options Representative20.1.1.7. Series 55: Limited Representative Equity Trader20.1.1.8. Series 62: Corporate Securities Limited Representative20.1.1.9. Series 63: Uniform Securities Agent State Law Examination20.1.1.10. Series 82: Limited Representative/Private Securities Offerings20.1.2. Becoming a registered principal20.1.2.1. Series 23 or 24: General Securities Principal20.1.2.2. Series 26: Investment Company Products/Variable Contracts Principal20.1.2.3. Series 4: Registered Options Principal20.1.2.4. Series 27: Financial and Operations Principal20.2. The ABCs of Financial Advisors20.2.1. Accredited Asset Management Specialist20.2.2. Chartered Financial Analyst20.2.3. Certified Financial Planner20.2.4. Certified Fund Specialist20.2.5. Chartered Financial Consultant20.2.6. Chartered Life Underwriter20.2.7. Chartered Market Technician20.2.8. Chartered Mutual Fund Counselor20.2.9. Personal Financial Specialist20.2.10. Registered Financial Consultant20.3. The Licenses and Certifications You Need When Trading for Others
VI. The Part of Tens
21. Ten (Or More) Huge Trading Mistakes
21.1. Fishing for Bottoms21.2. Timing the Top21.3. Trading Against the Dominant Trend21.4. Winging It21.5. Taking Trading Personally21.6. Falling In Love21.7. Using After-Hours Market Orders21.8. Chasing a Runaway Trend21.9. Averaging Down21.10. Ignoring Your Stops21.11. Diversifying Badly21.12. Enduring Large Losses
22. Top Ten Trading Survival Techniques
22.1. Build Your Trading Tool Chest22.2. Use Both Technical and Fundamental Analyses22.3. Choose and Use Your Favorite Tools Wisely22.4. Count on the Averages to Make Your Moves22.5. Develop and Manage Your Trading System22.6. Know Your Costs22.7. Know When to Hold 'Em and When to Fold 'Em22.8. Watch for Signals, Don't Anticipate Them22.9. Buy on Strength, Sell on Weakness22.10. Keep a Trading Journal and Review It Often

Overview

Now updated — your guide to trading success regardless of the market!

Want to make smarter trading decisions? This strategy-packed, no-nonsense guide presents a proven system for analyzing stocks, trends, and indicators and setting a buy-and-sell range beforehand to decrease your risk in both up and down markets. You'll discover the benefits of position trading, conduct technical analysis, and research your entry and exit points before you even purchase your stock.

Build your trading toolbox — know the markets and exchanges, find a broker, set up your brokerage account, and determine your computer/Internet needs
Explore position trading — discover the benefit of executing trades in and out of positions and holding positions for various lengths of time, depending on trends
Find value in fundamental analysis — observe market behavior, understand economic indicators, find critical information in financial statements, and make the most of analysts
Take on technical analysis — build and read charts, identify trends, recognize bull and bear patterns, and differentiate between stocks that are range bound and ones that are trending
Develop strategies for buying and selling — know your risks, gather key info through analysis to build your optimum trading strategy, and develop your own powerful trading system
Jump into the deep end — from swing and day trading to derivatives and foreign currency, get the basics of these riskier forms of trading

Open the book and find:

The ins and outs of trading stocks
Fresh ways to analyze trends and indicators
Updated stock charts and Web sites
Position trading tips and techniques
Step-by-step instructions for building and reading charts
Key money management techniques
Warnings about frauds and scams
Top ten trading survival techniques
Huge trading mistakes to avoid at all costs

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.

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