TECHNITRADER®
Your
Stock Market Educator
Rated the best, most informative, easiest to learn, complete Technical Analysis Training by:
Professional Traders, CPA's, Attorneys, Brokers, & Certified Financial Planners.
|
TECHNITRADER®
Your
Stock Market Educator
Rated the best, most informative, easiest to learn, complete Technical Analysis Training by: Professional Traders, CPA's, Attorneys, Brokers, & Certified Financial Planners. |
|
|
Inside the Market Lesson #1: Market Terminology Your first step to becoming consistently successful starts with learning about how the stock market works, why it works the way it does, where to go for reliable information, how to find good stocks, and when to buy and when to sell. To start your journey toward success, you need to understand market terminology: Trading is a generic term that is used to describe all activity in the stock market. Whether you are a long term investor or an options player, you are “trading the market.” Novices to the market often confuse this term and think it means daytrading. Daytrading is a specific style of short term trading that gained popularity during the 90's among retail traders (ordinary folk trading the market) for a brief period of time. It was disastrous for most of them because they didn't understand how the market works.
All floor traders in the exchanges are intraday-daytraders which simply means a trader who trades a stock numerous times in a day and is flat or out of all positions overnight. For the ordinary person who wants to short term trade the market, daytrading is not a good fit. It is the highest risk style of trading and requires a large capital base and margin. If you want to make money every month from the stock market, consider either swing trading or position trading as your style. Of the two, position trading is the lowest risk and easiest to learn. And in recent years, position trading has been the style of trading that has reaped the highest rewards. An example is MSTR which started out as a $5.00 stock in 2003 and rose to $50.00 in less than one year. Institutional Accumulation or Distribution: Institutions currently account for 80% or more of the market activity. Institutions are: mutual funds, pension funds, corporations both private and public, non-profit organizations, and other large lot buyers. The institutions control billions of dollars and move the market up or down. Tracking their activity is critical to success because you need to buy a stock when they first start buying it, ride the run up with them, and exit when they do. We do this in two ways:
Why and how a small trader can trade with the institutions: If institutional investors bought huge quantities of stock all at once they would cause the price of the stock to jump up hugely and that’s not what they want to do. They want to buy the stock within a specific price range established by their internal analysis of the future potential value of that stock. So the institutional long term investor buys into a stock slowly, in increments over several weeks or months. This is called accumulation and you can track accumulation by watching certain indicators.
You can see indicators on this chart. Each tells the trader something different about this stock and its price action. Indicators are wonderful tools that technical analysts and traders use to improve their stock selection, but they should not be used as entries for buying a stock.
SuperMontage: This is NASDAQ's new order entry system that allows faster, more accurate and more reliable order processing. The NASDAQ is a different stock exchange than the New York Stock Exchange. NASDAQ is totally automated and does not have a "trading floor" as does NYSE. The automation helps speed up order processing and the matching of buy to sell orders. Nearly all of the orders, especially small orders under 5000 shares are processed by the NASDAQ computers. What that means is that your buy order is matched with a seller's order by a computer rather than a market maker. Market Maker: is a broker who is licensed to "make a market" in a stock or group of stocks. NYSE specialists are market makers who have purchased a 'seat' on the NYSE and make a market in only one stock. NASDAQ market makers usually make a market in several stocks. The NYSE specialist began in the early years of the 20th century. In those days, each stock had its own "Post" (a real post that stood in an area of the trading floor). Traders went to that post to buy and sell that particular stock. One day, one of these prestigious traders broke his leg and was unable to go from post to post. While he was sitting at one of the posts, other traders came up and asked him if he could trade that stock on their behalf. And in that moment the NYSE specialist was born. Contrary to popular trading lore, market makers are not out to 'get the little guy'. Millions of orders go through the exchanges every day. It would be impossible for a market make to single out your tiny order among those millions. Unlike the NYSE, there are no specialists, but NASDAQ still uses market makers and their floor traders for some transaction processing. NYSE is moving toward becoming more automated and away from the specialist. NYSE has merged with Archipelago which is an automated exchange similar to the NASDAQ. This move was necessary because NYSE has been losing volume and therefore profits to NASDAQ in recent years. ETF's are
Exchange Traded Funds which are the hot "mutual fund" type of investment
for this new century. A Selling Short: the borrowing of stock from a broker to sell on the open market with the anticipation that the stock price is going to fall. Later after the stock as dropped in price, you "buy-to-cover" which is an automated method of paying back the broker from whom you originally borrowed the stock. Yes, this is perfectly legal, but you must sell short with margin, so you need to have a margin account with your broker. A margin account is borrowing money from your broker with a nominal interest rate. Most IRA's do not allow selling short trades. But other pension plans do allow it. What is the advantage of selling short? It means that you can make money when the market is going up and when it is going down. This doubles your trading profit opportunities. Click here for Lesson #2
**All charts are provided by Worden Bros. TC2007(R) copyright 2007 with our thanks |
Please email your questions or comments about this website to:
marketing@TechniTrader.com.
|
Daytrading
evolved when a few professional floor traders left their market maker employer
to start their own business back in the early 80's. As seasoned
professionals, these floor traders excelled in taking profits from the market
and their old bosses. This was during the days when the markets still used
fractions rather than decimals for partial points. In those days there was a wide
spread (the difference between the bid and the ask) which these pros took advantage of as 'daytraders'. This created
a battle between the market makers and the renegade floor traders which caused
the market to change from fractions to decimals to squeeze out the renegades.
With a spread that is now mere pennies rather than .25 or .50, it is nearly
impossible for the average trader to make consistent profits from daytrading
today. 
An Indicator is a mathematical formula that
was written to analyze certain aspects of market data. Every transaction in the
market is recorded which makes indicators reliable and gives the average small
trader a decided advantage over the large lot trader. You can actually see what
the institutions are doing, when they are buying and when they are selling.
They however, are unaware of you. 
n
ETF is a group of stocks that are typical of what a mutual fund would hold for
long term investments. ETF's are not the actual stocks in any particular
fund, however, since most funds trade short term these days and are constantly
changing their portfolio holdings. ETF's offer many advantages to traders
and investors because they can be bought and sold just like a stock. They
have charts just like a regular stock, costs are much lower than mutual funds,
and tax benefits are also a consideration. ETF's are available for US
funds and for foreign funds and can offer a great way to diversify your long
term portfolio as well as many short term trading opportunities.