Trading For Dummies - Lita Epstein, Grayson D. Roze

Год выпуска: 2023

Автор: Lita Epstein, Grayson D. Roze

Жанр: трейдинг для начинающих

Формат: PDF

Качество: OCR

Количество страниц: 402

Описание:

Trading used to be the purview of institutional and corporate entities that had direct access to closed securities trading systems. Technical advances leveled the playing field, making securities trading much more accessible to individuals. After the stock market crash of 2000, when many people lost large sums of money because professional advisors or mutual fund managers didn’t protect their portfolio principal, investors chose one of two options — getting out of the market altogether and seeking safety or finding out more about how to manage their own portfolios. Many who came back into the market ran from it again in late 2008, when the market saw its worst year since the Great Depression. In 2017, the stock market roared to a high of the Dow Jones Index topping 21,000. The race up the ladder continued until it reached a high of 36,226 in December 2022, but then the next correction began. The Dow closed at 34,200 on November 25, 2022 — still considerably higher than the 2017 top of 21,000.

The concept of buying and holding forever died after that 2000 stock crash; it saw some revival from 2004 to 2007 but then suffered another death in 2008. People today look for new ways to invest and trade. Although investors still practice careful portfolio balancing using a buy-and-hold strategy, they look much more critically at what they’re holding and are more likely to change their holdings now than they were before the crash. Others have gotten out of the stock market completely.

Still others have moved on to the world of trading. Many kinds of traders ply their skills in the markets. The ones who like to take on the most risk and want to trade as a full-time business look to day trading. They never hold a position in a security overnight. Swing traders hold their positions a bit longer, sometimes for a few days or even a few weeks.

But we don’t focus on the riskier types of trading in this book; instead, we focus on position trading, which involves executing trades in and out of positions and holding positions for a few weeks or months and maybe even a year or more, depending on trends that are evident in the economy, the marketplace, and ultimately individual stocks.

About the book «Trading For Dummies»

Many people have misconceptions about trading and its risks. Most people think of the riskiest type of trading — day trading — whenever they hear the word trader. We’re definitely not trying to show you how to day trade. Instead, we want to introduce you to the world of position trading, which is much safer, less risky, and yet a great way to build a significant portfolio.

Don’t get the wrong idea; trading in securities always carries risks. You should never trade with money that you can’t risk losing. That means trading with your children’s education savings isn’t a good idea. If you want to trade, set aside a portion of your savings that isn’t earmarked for any specific use and that you believe you can put at risk without ruining your lifestyle.

Obviously, we plan to show you ways to minimize risk, but we can’t promise that you won’t take a loss. Even the most experienced traders, the ones who put together the best trading systems, don’t have a crystal ball and periodically get hit by a market shock and accompanying loss. By using the basics of fundamental and technical analyses, we show you how to minimize your risk, how to recognize when the market is ripe for a trade, how to identify which specific sectors in the market are the right places to be, how to figure out which phases economic and market cycles are in, and how to make the best use of all that knowledge.

As you dip into and out of this book, feel free to skip the sidebars (shaded boxes). They contain interesting information but aren’t essential to understanding important points of trading.

Within this book, some web addresses may break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

We’ve made a number of assumptions about your basic knowledge and stocktrading abilities. We assume that you’re not completely new to the world of investing in stocks and that you’re familiar with the stock market and its basic language. Although we review many key terms and phrases as we explore the basics of trading, if everything you read sounds totally new to you, you probably need to read a basic book on investing in stocks before trying to move on to the more technical world of trading.

We also assume that you know how to operate a computer and use the Internet. If you don’t have high-speed access to the Internet now, be sure you have it before trying to trade. Many of the resources we recommend in this book are available online, but you need high-speed access to be able to work with many of these valuable tools.

Beyond the Book

In addition to the material in the print book or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. When you just want a quick reminder of trading basics, check out the free Cheat Sheet at dummies.com; just search for “Trading For Dummies Cheat Sheet.” There you’ll find explanations on how to identify the beginning of bull and bear markets, how to trade in those types of markets, and how to develop your own trading system. We also recommend websites that offer trading information, analysis, and advice.

Before you can read charts, you need to create them. To help you get started creating and reading financial charts, we have partnered with StockCharts.com, one of the web’s premier charting platforms. You can sign up for a free one-month trial of the site’s advanced charting tools, resources, and more, but we’ve also arranged a 20 percent discount exclusively for Trading For Dummies readers toward a subscription on the website. When you’re ready to take your trading to the next level, you can use the coupon code SC-DUMMIES-23 to unlock your special discount. Get started with the free trial today by visiting stockcharts.com. If you’re already a StockCharts member, you can also use the discount code to renew your existing subscription.

Where to Go from Here

You’re ready to enter the exciting world of trading. You can start anywhere in this book; each of the chapters is self-contained. But if you’re totally new to trading, starting with Chapter 1 is the best way to understand the basics. If you already know the basics, understand everything about the various markets and exchanges that you care to know, have a broker picked out, and have all the tools you’ll need, you may want to start with fundamental analysis in Part 2. Remember, though, to have fun and enjoy your trip!

Table of Contents

Trading For Dummies

GETTING STARTED WITH TRADING

1. The Ups and Downs of Trading Stocks

   • Distinguishing Trading from Investing
   • Seeing Why Traders Do What They Do
   • Successful Trading Characteristics
   • Tools of the Trade
   • Taking Time to Trade More Than Just Stocks
     • Position trading
     • Short-term swing trading
     • Day trading
   • Going Long or Short
   • Managing Your Money
   • Understanding Fundamental Analysis
   • Getting a Grip on Technical Analysis
   • Putting Trading Strategy into Practice
   • Trading at Higher Risk
   • Remembering to Have Fun!

2. Exploring Markets and Stock Exchanges

   • Introducing the Broad Markets
     • Stock markets
     • Futures markets
     • Bond markets
     • Options markets
   • Reviewing Stock Exchanges
     • New York Stock Exchange (NYSE: ICE)
     • NASDAQ
     • Amex (now NYSE MKT LLC)
     • Electronic communications networks (ECNs)
   • Understanding Order Types
     • Market order
     • Limit order
     • Stop order
     • Stop-limit order
     • Good-’til-canceled order
     • Other order types

3. Going for Broke(r): Discovering Brokerage Options

   • Why You Need a Broker
   • Exploring Types of Brokers and Brokerage Services
     • Full-service brokers
     • Discount brokers
     • Direct-access brokers
     • Proprietary trading firms
     • Futures brokers
   • Services to Consider When Choosing a Broker
     • Types of orders supported
     • Data tools
     • Charts
     • ECN access
   • Knowing the Types of Brokerage Accounts
     • Cash accounts
     • Margin accounts
     • Options
     • IRAs and other retirement accounts
   • Choosing the Right Broker for You
     • Considering more than price
     • Doing a little research
     • Understanding how you’ll be paying
   • Getting to Know the Rules
     • Margin requirements
     • Settling trades
     • Free riding

4. Putting Your Key Business Tool to Work: The Computer

   • Making Use of Your Computer
     • Identifying trading candidates
     • Managing your account
     • Improving your trades
   • Finding Price Charts
     • Checking out Internet charts with delayed prices
     • Considering Internet charts with real-time prices
     • Looking into charting software
   • Digging Up Fundamental Data
   • Accessing Analyst Reports
   • Selecting a Trading Platform
     • Browser-based trading environments
     • Integrated trading platforms
     • Features to consider
   • Determining Computer Requirements
     • Weighing Windows versus Mac versus Linux
     • Configuring your computer system
   • Accessing the Internet
     • Picking a browser
     • Securing your computer

READING THE FUNDAMENTALS: FUNDAMENTAL ANALYSIS

1. Fundamentals 101: Observing Market Behavior

   • The Basics of the Business Cycle
     • Understanding how periods of economic growth and recession are determined
     • Using economic indicators to determine the strength of the economy
     • Relating bull markets and bear markets to the economy
   • Employing a Sector Rotation Strategy
     • Early recovery
     • Full recovery
     • Early recession
     • Full recession
     • Sector rotation
   • Understanding Economic Indicators
     • Interest rates
     • Money supply
     • Inflation rate
     • Deflation
     • Jobless claims
     • Consumer confidence
     • Business activity
   • Using Data from Economic Indicators

2. Digging Into Fundamental Analysis

   • Checking Out the Income Statement
     • Revenues
     • Cost of goods sold
     • Gross margins
     • Expenses
     • Interest payments
     • Tax payments
     • Dividend payments
     • Profitability
   • Looking at Cash Flow
     • Operating activities
     • Financing activities
     • Investment activities
   • Scouring the Balance Sheet
     • Analyzing assets
     • Looking at debt
     • Reviewing goodwill
   • Determining Stock Valuations
     • Earnings
     • Earnings growth rate
   • Figuring Your Ratios: Comparing One Company’s Stock to Another
     • Price/earnings ratio
     • Price/book ratio
     • Return on assets

3. Listening to Analyst Calls

   • Getting to Know Your Analysts
     • Buy-side analysts: You won’t see them
     • Sell-side analysts: Watch for conflicts
     • Independent analysts: Where are they?
   • The Importance of Analysts
     • Tracking how a company’s doing
     • Providing access to analyst calls
   • Pointers for Listening to Analyst Calls
     • Understanding the analysts’ language
     • Developing your listening skills
   • Locating Company Calls
   • Identifying Trends in the Stock-Analyst Community

READING THE CHARTS: TECHNICAL ANALYSIS

1. Seeing Is Believing: An Introduction to Technical Analysis

   • Understanding the Methodology
     • Finding everything in the price
     • Seeing that price movements are not always random
     • Balancing supply and demand
     • Understanding where you’ve been
     • Understanding where you’re headed
   • Answering the Detractors
     • Walking randomly
     • Trading signals known to all
   • Executing Your Trading Plan
   • Using StockCharts.com

2. Reading Bar Charts Is Easy (Really)

   • Creating a Price Chart
     • Looking at a single price bar
     • Measuring volume
     • Coloring charts
   • Identifying Simple Single-Day Patterns
     • Single-bar patterns
     • Reversal patterns
   • Recognizing Trends and Trading Ranges
     • Discerning a trading range
     • Spotting a trend
     • Paying attention to time frame
   • Searching for Transitions
     • Support and resistance: The keys to trend transitions
     • Finding a breakout
     • Sipping from a cup and handle
     • Deciding what to do with a double bottom
     • An alternative double-bottom strategy
     • Looking at other patterns

3. Following Trends to Boost Your Probability of Success

   • Identifying Trends
   • Supporting and Resisting Trends
     • Drawing trend lines to show support
     • Using channels
     • Trending and channeling strategies
   • Seeing Gaps
     • Common gap
     • Breakout or breakaway gap
     • Continuation gap
     • Exhaustion gap
     • Island gap
   • Waving Flags and Pennants
   • Withstanding Retracements
     • Three-step and five-step retracements
     • Subsequent trading ranges
   • Dealing with Failed Signals
     • Trapping bulls and bears
     • Filling the gaps
     • Deciding whether to reverse directions

4. Calculating Indicators and Oscillators

   • The Ins and Outs of Moving Averages
     • Simple moving average
     • Exponential moving average
     • Comparing SMAs and EMAs
     • Interpreting and using moving averages
     • Support and resistance factors
     • Deciding the moving average time frame
   • Understanding Buy and Sell Pressure through Stochastic Oscillators
     • Calculating stochastic oscillators
     • Interpreting stochastic oscillators
   • Tracking Momentum with the MACD
     • Calculating the MACD
     • Using the MACD
   • Revealing Relative Strength
     • Calculating relative strength
     • Putting relative strength to work

DEVELOPING STRATEGIES FOR WHEN TO BUY AND SELL STOCKS

1. Money Management Techniques: Building a More Robust Portfolio

   • Achieving Your Trading Goals with Smart Money Management
   • Managing Your Portfolio
     • Thinking of trading as a business
     • Recognizing the trader’s dilemma
     • Finding a better plan
   • Protecting Your Principal
     • Recovering from a large loss: It ain’t easy
     • Setting a target price for handling losses
     • Strategies for managing profitable trades
   • Understanding Your Risks
     • Market risks
     • Investment risks
     • Trading risks

2. Combining Fundamental and Technical Analyses for Optimum Strategy

   • Seeing the Big Picture
     • Knowing when the Fed is your friend
     • Keeping an eye on industrial production
     • Watching sector rotation
     • Finding the dominant trend
   • Selecting Your Trading Stock
   • Trading Strategies
     • Trading the bullish transition
     • Trading in a bull market
     • Trading the bullish pullback
     • Trading the bearish transition
     • Trading in a bear market
     • Trading the bearish pullback
     • A hypothetical trading example

3. Minimizing Trading Risks Using Exchange-Traded Funds

   • What Is an ETF?
     • Examining the advantages
     • Avoiding the flaws
   • Does Family Matter?
     • Market-weighted ETFs
     • Equal-weighted ETFs
     • Fundamentally weighted ETFs
   • Sector Rotation Strategies
     • Early recovery
     • Full recovery
     • Early recession
     • Full recession
   • Analyzing ETFs
   • Portfolio Construction
     • International trading with ETFs
     • Commodities and ETFs
     • Currency trading and ETFs
     • Leveraged ETFs
     • Inverse ETFs
     • Actively Managed ETFs

4. Executing Your Trades

   • Entering and Exiting Your Trade
     • Keeping straight the bid and the ask
     • Understanding the spread
     • Devising an effective order-entry strategy
     • Timing your trades: Entering orders after the market closes
     • Reviewing a week in the life of a trader
   • Selling Stocks Short
   • Avoiding Regulatory Pitfalls
     • Understanding trade-settlement dates
     • Avoiding free riding
     • Avoiding margin calls and forced sales
     • Avoiding pattern-day-trader restrictions
   • The Tax Man Cometh

5. Developing Your Own Powerful Trading System

   • Understanding Trading Systems
     • Discretionary systems
     • Mechanical systems
     • Trend-following systems
     • Countertrend systems
   • Selecting System-Development Tools
     • Choosing system-development hardware
     • Deciding on system-development software
     • Finding historical data for system testing
   • Developing and Testing Trading Systems
     • Working with trend-following systems
     • Using breakout trading systems
     • Accounting for slippage
   • Keeping a Trading Journal
   • Evaluating Trading Systems for Hire

RISK-TAKER’S PARADISE

1. The Basics of Swing Trading

   • Selecting Stocks Carefully
   • Looking at Swing-Trading Strategies
     • Trading trending stocks
     • Trading range-bound stocks
     • Trading volatility
     • Money management issues
   • Using Options for Swing Trading
   • Getting a Grip on Swing-Trading Risks
     • Taxes (of course)
     • Pattern-day-trading rules apply

2. The Basics of Day Trading

   • What Day Trading Is All About
     • Institutional day traders (market makers)
     • Retail day traders
   • Understanding Account Restrictions
     • The Fed’s Regulation T: Margin requirements
     • Settlement: No free rides
   • Strategies for Successful Day Trading
     • Technical needs
     • Trading patterns
     • Scalping
     • Trend traders
   • Recognizing That Risks Are High
     • Liquidity
     • Slippage
     • Trading costs
     • Taxes (of course)
   • Avoiding the Most Common Mistakes

3. Doing It by Derivatives

   • Types of Derivatives: Futures and Options
     • Buy now, pay later: Futures
     • Wait and see: Options
   • Buying Options and Futures Contracts
     • Opening an account
     • Calculating the price and making a buy
   • Options for Getting Out of Options
     • Offsetting the option
     • Holding the option
     • Exercising the option
   • The Risks of Trading Options and Futures
   • Minimizing Risks

4. Going Foreign (Forex)

   • Exploring the World of Forex
     • Types of currency traders
     • Why currency changes in value
     • What traders do
   • Understanding Money Jargon
     • Spot transactions
     • Forward transactions
     • Options
   • Looking at How Money Markets Work
     • Different countries, different rules
     • The almighty (U.S.) dollar
     • Organized exchanges
   • Taking Necessary Risks in the World Money Market
     • Understanding the types of risks
     • Seeking risk protection
   • Getting Ready to Trade Money

THE PART OF TENS

1. More Than Ten Huge Trading Mistakes

   • Fishing for Bottoms
   • Timing the Top
   • Trading against the Dominant Trend
   • Winging It
   • Taking Trading Personally
   • Falling in Love
   • Using After-Hours Market Orders
   • Chasing a Runaway Trend
   • Averaging Down
   • Ignoring Your Stops
   • Diversifying Badly
   • Enduring Large Losses

2. Ten Trading Survival Techniques

   • Build Your Trading Tool Chest
   • Choose and Use Your Favorite Tools Wisely
   • Use Both Technical and Fundamental Analyses
   • Count on the Averages to Make Your Moves
   • Develop and Manage Your Trading System
   • Know Your Costs
   • Have an Exit Strategy
   • Watch for Signals, Don’t Anticipate Them
   • Buy on Strength, Sell on Weakness
   • Keep a Trading Journal and Review It Often

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