Trading For Dummies
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Trading For Dummies

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Trade your way to a more profitable portfolio Savvy traders can make money in both up and down markets and now you can, too! In Trading For Dummies, investors from every walk of life will benefit from sample stock charts, position trading tips and techniques, fresh ways to analyze trends and indicators, and all the latest information on trading stocks wisely in any type of market. Taking the stress out of the stock market, this no-nonsense guide walks you through all the steps to trade with authority and takes your portfolio to exciting new heights. Whether you're an investor looking for a clear guide to successfully trading stocks in any type of market, or an investor who has experience trading and are looking for new, proven methods to enhance the profitability of investments, you'll find a proven system for eliminating doubt, decreasing risk, and, ultimately, increasing return. * Understand market cycles and choose a great broker * Manage your risk exposure * Build a balanced portfolio * Develop your own custom trading strategy If you're in need of basic strategies and stock valuation methodologies that let you make smart trading decisions, this book has it all!
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Product details

  • Paperback | 416 pages
  • 188 x 234 x 20mm | 540g
  • New York, United States
  • English
  • 4th Edition
  • 1119370310
  • 9781119370314
  • 247,877

Back cover copy

Grasp the latest on global markets Assume more risk and build an aggressive portfolio Analyze trends and indicators to trade wisely

Trade your way to a profitable portfolio

Savvy traders make money in both up and down markets--and now you can, too! Taking the stress out of the stock market, this no-nonsense guide helps investors at all levels take their portfolio to exciting new heights. You'll benefit from sample stock charts, position trading tips and techniques, fresh ways to analyze trends and indicators, and all the latest information on trading stocks wisely in any type of market. Hands down, this trading book has it all!

Inside... Observe market behavior Understand brokerage options Trade wisely in any market Follow trends for profit Know when to buy and sell Minimize risk with exchange-traded funds Avoid trading mistakes
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Table of contents

Introduction 1


About This Book 2


Foolish Assumptions 2


Icons Used in This Book 3


Beyond the Book 3


Where to Go from Here 4


Part 1: Getting Started with Trading 5


Chapter 1: The Ups and Downs of Trading Stocks 7


Distinguishing Trading from Investing 8


Seeing Why Traders Do What They Do 8


Successful Trading Characteristics 9


Tools of the Trade 10


Taking Time to Trade More Than Just Stocks 10


Position trading 10


Short-term swing trading 11


Day trading 12


Going Long or Short 12


Managing Your Money 12


Understanding Fundamental Analysis 13


Getting a Grip on Technical Analysis 14


Putting Trading Strategy into Practice 15


Trading at Higher Risk 17


Remembering to Have Fun! 17


Chapter 2: Exploring Markets and Stock Exchanges 19


Introducing the Broad Markets 19


Stock markets 20


Futures markets 20


Bond markets 21


Options markets 22


Reviewing Stock Exchanges 22


New York Stock Exchange (NYSE: ICE) 22


NASDAQ 24


Amex (now NYSE MKT LLC) 25


Electronic communications networks (ECNs) 26


Understanding Order Types 26


Market order 27


Limit order 27


Stop order 28


Stop-limit order 29


Good-'til-canceled order 30


Other order types 30


Chapter 3: Going for Broke(r): Discovering Brokerage Options 31


Why You Need a Broker 32


Exploring Types of Brokers and Brokerage Services 32


Full-service brokers 32


Discount brokers 34


Direct-access brokers 34


Proprietary trading firms 36


Futures brokers 36


Services to Consider When Choosing a Broker 36


Types of orders supported 36


Data tools 37


Charts 37


ECN access 38


Knowing the Types of Brokerage Accounts 38


Cash accounts 38


Margin accounts 38


Options 39


IRAs and other retirement accounts 39


Choosing the Right Broker for You 41


Considering more than price 41


Doing a little research 42


Understanding how you'll be paying 43


Getting to Know the Rules 43


Margin requirements 43


Settling trades 45


Free riding 45


Chapter 4: Putting Your Key Business Tool to Work: The Computer 47


Making Use of Your Computer 48


Identifying trading candidates 48


Managing your account 49


Improving your trades 49


Finding Price Charts 49


Checking out Internet charts with delayed prices 51


Considering Internet charts with real-time prices 51


Looking into charting software 52


Digging Up Fundamental Data 53


Accessing Analyst Reports 54


Selecting a Trading Platform 54


Browser-based trading environments 55


Integrated trading platforms 56


Features to consider 57


Determining Computer Requirements 58


Weighing Windows versus Mac versus Linux 58


Configuring your computer system 59


Accessing the Internet 61


Picking a browser 61


Securing your computer 61


Part 2: Reading the Fundamentals: Fundamental Analysis 63


Chapter 5: Fundamentals 101: Observing Market Behavior 65


The Basics of the Business Cycle 66


Understanding how periods of economic growth and recession are determined 67


Using economic indicators to determine the strength of the economy 68


Relating bull markets and bear markets to the economy 70


Employing a Sector Rotation Strategy 70


Early recovery 71


Full recovery 72


Early recession 72


Full recession 73


Sector rotation 73


Understanding Economic Indicators 74


Interest rates 75


Money supply 76


Inflation rate 76


Deflation 78


Jobless claims 79


Consumer confidence 80


Business activity 80


Using Data from Economic Indicators 82


Chapter 6: Digging Into Fundamental Analysis 85


Checking Out the Income Statement 86


Revenues 87


Cost of goods sold 87


Gross margins 88


Expenses 89


Interest payments 90


Tax payments 91


Dividend payments 91


Profitability 92


Looking at Cash Flow 93


Operating activities 94


Financing activities 95


Investment activities 96


Scouring the Balance Sheet 97


Analyzing assets 97


Looking at debt 98


Reviewing goodwill 99


Determining Stock Valuations 99


Earnings 100


Earnings growth rate 100


Figuring Your Ratios: Comparing One Company's Stock to Another 102


Price/earnings ratio 102


Price/book ratio 103


Return on assets 103


Return on equity 103


Chapter 7: Listening to Analyst Calls 105


Getting to Know Your Analysts 106


Buy-side analysts: You won't see them 106


Sell-side analysts: Watch for conflicts 106


Independent analysts: Where are they? 109


The Importance of Analysts 109


Tracking how a company's doing 110


Providing access to analyst calls 110


Pointers for Listening to Analyst Calls 112


Understanding the analysts' language 113


Developing your listening skills 114


Locating Company Calls 117


Identifying Trends in the Stock-Analyst Community 117


Part 3: Reading the Charts: Technical Analysis 119


Chapter 8: Seeing Is Believing: An Introduction to Technical Analysis 121


Understanding the Methodology 122


Finding everything in the price 123


Seeing that price movements are not always random 124


Balancing supply and demand 125


Understanding where you've been 125


Understanding where you're headed 127


Answering the Detractors 128


Walking randomly 129


Trading signals known to all 129


Executing Your Trading Plan 130


Using StockCharts.com 131


Chapter 9: Reading Bar Charts Is Easy (Really) 135


Creating a Price Chart 136


Looking at a single price bar 137


Measuring volume 138


Coloring charts 140


Identifying Simple Single-Day Patterns 140


Single-bar patterns 140


Reversal patterns 142


Recognizing Trends and Trading Ranges 143


Discerning a trading range 144


Spotting a trend 145


Paying attention to time frame 146


Searching for Transitions 147


Support and resistance: The keys to trend transitions 147


Finding a breakout 149


Sipping from a cup and handle 151


Deciding what to do with a double bottom 152


An alternative double-bottom strategy 153


Looking at other patterns 154


Chapter 10: Following Trends to Boost Your Probability of Success 155


Identifying Trends 156


Supporting and Resisting Trends 157


Drawing trend lines to show support 158


Using channels 159


Trending and channeling strategies 160


Seeing Gaps 161


Common gap 162


Breakout or breakaway gap 162


Continuation gap 162


Exhaustion gap 163


Island gap 164


Waving Flags and Pennants 164


Withstanding Retracements 165


Three-step and five-step retracements 166


Subsequent trading ranges 167


Dealing with Failed Signals 168


Trapping bulls and bears 168


Filling the gaps 169


Deciding whether to reverse directions 169


Chapter 11: Calculating Indicators and Oscillators 171


The Ins and Outs of Moving Averages 173


Simple moving average 173


Exponential moving average 175


Comparing SMAs and EMAs 178


Interpreting and using moving averages 179


Support and resistance factors 181


Deciding the moving average time frame 182


Understanding Buy and Sell Pressure through Stochastic Oscillators 183


Calculating stochastic oscillators 183


Interpreting stochastic oscillators 184


Tracking Momentum with the MACD 185


Calculating the MACD 186


Using the MACD 187


Revealing Relative Strength 190


Calculating relative strength 190


Putting relative strength to work 191


Part 4: Developing Strategies for When to Buy and Sell Stocks 193


Chapter 12: Money Management Techniques: Building a More Robust Portfolio 195


Achieving Your Trading Goals with Smart Money Management 196


Managing Your Portfolio 197


Thinking of trading as a business 197


Recognizing the trader's dilemma 198


Finding a better plan 199


Protecting Your Principal 201


Recovering from a large loss: It ain't easy 202


Setting a target price for handling losses 203


Strategies for managing profitable trades 205


Understanding Your Risks 209


Market risks 209


Investment risks 210


Trading risks 210


Chapter 13: Combining Fundamental and Technical Analyses for Optimum Strategy 213


Seeing the Big Picture 214


Knowing when the Fed is your friend 215


Keeping an eye on industrial production 215


Watching sector rotation 216


Finding the dominant trend 220


Selecting Your Trading Stock 225


Trading Strategies 226


Trading the bullish transition 226


Trading in a bull market 227


Trading the bullish pullback 227


Trading the bearish transition 228


Trading in a bear market 228


Trading the bearish pullback 229


A hypothetical trading example 229


Chapter 14: Minimizing Trading Risks Using Exchange-Traded Funds 231


What Is an ETF? 231


Examining the advantages 232


Avoiding the flaws 233


Does Family Matter? 233


Market-weighted ETFs 234


Equal-weighted ETFs 235


Fundamentally weighted ETFs 235


Sector Rotation Strategies 236


Early recovery 236


Full recovery 236


Early recession 237


Full recession 237


Analyzing ETFs 237


Portfolio Construction 239


International trading with ETFs 239


Commodities and ETFs 239


Currency trading and ETFs 239


Leveraged ETFs 240


Inverse ETFs 240


Chapter 15: Executing Your Trades 241


Entering and Exiting Your Trade 241


Keeping straight the bid and the ask 243


Understanding the spread 244


Devising an effective order-entry strategy 244


Timing your trades: Entering orders after the market closes 247


Reviewing a week in the life of a trader 248


Selling Stocks Short 253


Avoiding Regulatory Pitfalls 254


Understanding trade-settlement dates 254


Avoiding free riding 255


Avoiding margin calls and forced sales 256


Avoiding pattern-day-trader restrictions 258


The Tax Man Cometh 258


Chapter 16: Developing Your Own Powerful Trading System 259


Understanding Trading Systems 260


Discretionary systems 261


Mechanical systems 261


Trend-following systems 262


Countertrend systems 263


Selecting System-Development Tools 264


Choosing system-development hardware 264


Deciding on system-development software 264


Finding historical data for system testing 266


Developing and Testing Trading Systems 267


Working with trend-following systems 267


Using breakout trading systems 270


Accounting for slippage 275


Keeping a Trading Journal 275


Evaluating Trading Systems for Hire 276


Part 5: Risk-Taker's Paradise 279


Chapter 17: The Basics of Swing Trading 281


Selecting Stocks Carefully 281


Looking at Swing-Trading Strategies 283


Trading trending stocks 283


Trading range-bound stocks 287


Trading volatility 289


Money management issues 291


Using Options for Swing Trading 291


Getting a Grip on Swing-Trading Risks 293


Taxes (of course) 293


Pattern-day-trading rules apply 294


Chapter 18: The Basics of Day Trading 295


What Day Trading Is All About 296


Institutional day traders (market makers) 296


Retail day traders 296


Understanding Account Restrictions 299


The Fed's Regulation T: Margin requirements 299


Settlement: No free rides 301


Strategies for Successful Day Trading 301


Technical needs 302


Trading patterns 302


Scalping 303


Trend traders 303


Recognizing That Risks Are High 303


Liquidity 304


Slippage 304


Trading costs 305


Taxes (of course) 306


Avoiding the Most Common Mistakes 307


Chapter 19: Doing It by Derivatives 311


Types of Derivatives: Futures and Options 312


Buy now, pay later: Futures 312


Wait and see: Options 316


Buying Options and Futures Contracts 321


Opening an account 321


Calculating the price and making a buy 322


Options for Getting Out of Options 323


Offsetting the option 323


Holding the option 324


Exercising the option 324


The Risks of Trading Options and Futures 325


Minimizing Risks 326


Chapter 20: Going Foreign (Forex) 329


Exploring the World of Forex 330


Types of currency traders 330


Why currency changes in value 331


What traders do 332


Understanding Money Jargon 333


Spot transactions 334


Forward transactions 334


Options 335


Looking at How Money Markets Work 336


Different countries, different rules 337


The almighty (U.S.) dollar 337


Organized exchanges 337


Taking Necessary Risks in the World Money Market 339


Understanding the types of risks 339


Seeking risk protection 342


Getting Ready to Trade Money 343


Part 6: The Part of Tens 345


Chapter 21: More Than Ten Huge Trading Mistakes 347


Fishing for Bottoms 347


Timing the Top 348


Trading against the Dominant Trend 349


Winging It 349


Taking Trading Personally 350


Falling in Love 350


Using After-Hours Market Orders 351


Chasing a Runaway Trend 351


Averaging Down 351


Ignoring Your Stops 352


Diversifying Badly 352


Enduring Large Losses 353


Chapter 22: Ten Trading Survival Techniques 355


Build Your Trading Tool Chest 355


Choose and Use Your Favorite Tools Wisely 356


Use Both Technical and Fundamental Analyses 357


Count on the Averages to Make Your Moves 357


Develop and Manage Your Trading System 358


Know Your Costs 358


Have an Exit Strategy 359


Watch for Signals, Don't Anticipate Them 359


Buy on Strength, Sell on Weakness 360


Keep a Trading Journal and Review It Often 360


Index 361
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About Lita Epstein

Lita Epstein, MBA, is the author of more than 35 books, including Bookkeeping For Dummies and Reading Financial Reports For Dummies. Grayson D. Roze has worked in the financial services industry for StockCharts.com since 2012. He now serves as a business manager at the company. He is the author of Tensile Trading: The 10 Essential Stages of Stock Market Mastery.
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