Getting Started in Stock Investing and Trading Book

Acknowledgments viii

Element Key ix

Introduction xi

PART 1 INVESTING

CHAPTER 1 THE NATURE OF STOCK INVESTING 3

Favorable Conditions for Owning Stocks 4

Relationships between Price and Fundamental Value 5

CHAPTER 2 INVESTMENT RISKS 17

Market Risk 18

Leverage Risk 20

Knowledge and Experience Risk 22

Sector Risk 25

Political and Economic Risk 26

Inflation Risk and Tax Risk 27

Fundamental Risk 30

Lost Opportunity Risk 32

CHAPTER 3 VALUE INVESTMENT AND GROWTH INVESTMENT 37

Value Investing and Control 41

Value Investing Myths and Facts 43

CHAPTER 4 MARKET STRATEGIES 53

A Basic Strategy: Buy and Hold 54

A Strategic Requirement: Diversifi cation 55

Other Market Strategies 63

Ex-Dividend Date Buying 66

CHAPTER 5 FUNDAMENTAL ANALYSIS 71

The Balance Sheet 75

The Income Statement 77

The P/E Ratio: Finding a Bargain-Priced Stock 78

Revenue and Earnings: Fundamentals Based on the Operating Statement 83

Working Capital: Fundamentals as a Form of Money Management 86

CHAPTER 6 DIVIDEND STRATEGIES 93

Dividend Yield as a Means for Stock Selection 93

Calculating Dividend Yield 94

Reinvesting Dividends 97

When Dividends Are Earned and Paid 98

Picking Stocks for Dividends 101

CHAPTER 7 ALTERNATIVES: STOCKS OR MUTUAL FUNDS 107

Investment Clubs 108

Types of Mutual Funds 110

Mutual Fund Fees 112

Classification by Features 115

Other Conduit Investments 117

Variable Annuities 119

PART 2 TRADING

CHAPTER 8 THE NATURE OF STOCK TRADING 127

Favorable Conditions for Trading Stocks 132

Relationships between Technical and Fundamental Value 137

CHAPTER 9 TRADING RISKS 143

Market Risk and Volatility Risk 145

Leverage Risk 149

Short Position Risk 152

Extreme Reaction Risk 153

Technical Knowledge and Experience Risk 156

Technical Risk and Market Culture 157

CHAPTER 10 TRADING METHODS: DAY AND SWING TRADING 165

Day Trading 166

Swing Trading 172

Exit and Entry Signals 175

CHAPTER 11 CHARTING TOOLS AND INTERPRETATION 185

Traditional Types of Charts 186

Candlestick Charts: The Basics 189

Combining Candlesticks with Western Technical Analysis 198

CHAPTER 12 ESSENTIAL TECHNICAL INDICATORS 203

Support and Resistance: The Trading Range as a Defining Attribute of Price 204

Popular Price Patterns and Their Meaning 212

Trend Lines for Spotting Reversals 217

Breakouts and Gaps 219

Moving Averages, Oscillators, and Volume Tests 222

CHAPTER 13 SIGNALS AND CONFIRMATION 229

Swing Trade Reversals 231

Candlestick Reversals 234

Signal Failure 241

CHAPTER 14 TECHNICAL ANALYSIS, DOW THEORY, AND PRACTICE 247

The Efficient Market 248

The Random Walk 251

Charles Dow and His Market Theory 257

Glossary 265

Recommended Reading 289

About the Author 291

Index 293