ita Epstein
Trading For Dummies®
Trading For Dummies®, 4th Edition
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030‐5774, www.wiley.com
Copyright © 2017 by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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Library of Congress Control Number: 2017941824
ISBN 978‐1‐119‐37031‐4 (pbk); ISBN 978‐1‐119‐37033‐8 (ebk); ISBN 978‐1‐119‐37032‐1 (ebk)
Introduction
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, but will they be spooked again after the next correction?
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 This Book
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 stock‐trading 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.
Icons Used in This Book
For Dummies books use little pictures, called icons, to flag certain chunks of text. Here’s what they actually mean:
