9-09 Put Versus Call Interest Put and call interest does not involve the banking definition of interest, but the market excitement – or lack thereof – regarding puts or calls for a security. Before you start thinking we’ve all lost our analytical minds, try to understand that market prices for stocks and put/ The right, Read More…

9-08 Option Pricing – Black-Scholes Model Any discussion of options and option prices would be incomplete without a mention of the The most generally accepted option pricing model. Black-Scholes option pricing model. Academics Fischer Black and Myron Scholes, in a paper they authored in 1973, stated their theory that an option was implicit to the Read More…

9-07 Implied Volatility What is implied volatility?   It is the forecast of current stock price movements with the theoretical value of the market price in the future. It is determined by time, expected movements, and supply and demand. In general, implied volatility (IV) increases in bearish markets and decreases in Bullish markets. Implied volatility Read More…

9-06 Volatility Volatility is a concept that involves all types of securities. For good reasons, high volatility is most often viewed as a negative in the investment world since rapid movements in market prices inherently involve both wins and losses. In investment language, volatility implies two scary conditions for you uncertainty and risk. If you Read More…

9-05 Writing Covered/Naked Calls We noted earlier that 35% of option buyers lose money and that 65% of option sellers make money. Option trading comes down to the turtle and the hare story. Option buyers are the rabbits that are generally looking for a quick move in stock prices, and the option sellers/writers are the Read More…

9-04 Making Your First Option Trade Now that you have a high level understanding of what options are, let’s look at option trading in a little more detail. When you get a quote on a stock you can also call up its option chain: First of all, you must realize that not all stocks have Read More…

9-03 Put Options Whereas a call option gives the holder the right to buy the stock at a certain price, a put option gives the holder the right to sell the stock at a certain price. A trader that buys a The right, but not the obligation, to sell a stock at a certain price Read More…

9-02 Call Options Now you know that an option is a contract between two entities, one who buys the contract and one who agrees to sell it at a specified price. What is the transaction called when you buy an option contract to go long? You might have guessed it from the name of this Read More…

9-01 What Are Options? Have you ever wanted to buy an expensive stock like Netflix or PayPal but you can’t afford to buy 100 shares? Options give you the right to participate and have exposure in these expensive stocks, but you are not required to use that much personal capital. Generally speaking, options are used Read More…

8-11 Resources This lesson focused on hot topics in the investment world. Obviously, by the nature of discussing “hot” topics, conditions can change quickly, sometimes making hot topics cold and others newly hot. However, the issues in this lesson have been “hot” for some time and should continue to be important for the foreseeable future. Read More…

8-08 Short Squeze In 2021, a group of investors on Reddit made investing history by coordinating together to cause a mania around GameStop (GME) stock. These investors were not necessarily trying to artificially “pump up” the stock’s price, but instead believed that the price was artificially being kept down by big investing firms, and by Read More…

8-07 Insider Transactions Insider transactions and trading has become a sensitive topic in recent years. Most thoughts tend to be negative (images of Martha Stewart in prison may spring to mind), giving the impression that all insider transactions are illegal or unethical. Not true. Technically, insider transactions involve an employee of a company trading his Read More…

8-06 Growth at a Reasonable Price (GARP) During the height of the dot.com explosion, a popular strategy – growth at any price – became the rallying cry for many investors. After the bubble burst, a more conservative strategy known as growth at a reasonable price, or GARP, became and remains a popular investing action plan. Read More…

8-05 Buy and Hold “Buy and Hold” is the polar opposite strategy from day trading. Buy and Hold investors spend all of their time researching the fundamental strengths of a company, making sure it is the best at what it does and has the resources to continue to be. When they buy a stock they Read More…

8-04 Penny Stocks Penny stocks are often popular with the newer and smaller investors. These investments are classically defined as any stock that sells for less than $5.00, traded outside the major exchanges, and often traded on the OTCBB (Over-the-Counter Bulletin Board ) market or on the “Pink Sheets.” In recent years, the names “nano caps,” “micro Read More…

8-03 Swing Trading “Day Trading” we talked about in the last lesson is a full-time job, and you have to pay extremely close attention to make money. Most investors interested in profitable short-term trading use “Swing Trading” instead, which is based on price movements over a day, week, or month. Done on an intra-day basis, Read More…

8-02 Day Trading The buying and selling of investments (stocks, futures, stock options, commodities, currencies, etc.) within the same trading day, so that all positions are closed before the end of each day, is called The buying and selling investments (stocks, futures, stock options, commodities, currencies, etc.) within the same trading day, so that all Read More…

8-01 Manias, Bubbles, and Crashes All the way back in chapter 2, we talked about How The Stock Market Works, and the concept of Bull Markets and Bear Markets. Both concepts relied heavily on “Supply and Demand” – new investors increasing demand causing prices to go up, and investors selling off their shares and leaving Read More…

7-15 Resources Alright, everyone, take a deep breath and relax. You’ve just been assaulted with a lot of information. Don’t panic. As you view real-world examples of these charts, you’ll become more familiar and comfortable with their interpretations. This and other sites will give you all the additional information you need to continue your current journey Read More…

7-14 Bollinger Bands In the 1980s, John Bollinger developed a new technical analysis tool to measure the highs and lows of a security price relative to previous trade data. These “trading bands” help investors track and analyze the “bandwidth” of stock prices over a period. The object of Bollinger Bands is to identify a “relative” Read More…

7-13 Support and Resistance Support in a stock chart forms at an area where the stock’s price seems to not want to move lower. This is due to the presence of buyers at this lower target price. Support and Resistance in a stock chart forms at an area where the stock’s price seems to not Read More…

7-12 Relative Strength Index (RSI) RSI is the acronym for “Relative Strength Index.” The RSI was created in 1978 by J. Welles Wilder to compare the strength and magnitude of a stock’s gains and losses in recent time periods. The simple formula converts this winning and losing data into a number ranging from 0 to Read More…

7-11 Moving Averages The Moving Average is a line on a chart that smooths out the recent price history by calculating the average price over 30 or 60 days (or any number of days). Moving averages are among the most popular, and easy to use and understand trading “tools” available to you. Also, moving averages Read More…

7-10 Fibonacci Ratios Often called the most accomplished mathematician of the Middle Ages, Leonardo Fibonacci is best known for his “numbers”. It is a sequence starting with 0 and 1, after which every third number is the sum of the previous two numbers. A Fibonacci “sequence” is 0,1,1,2,3,5,8, etc. The Fibonacci “ratios” are 23.6%, 38.2%, Read More…

7-09 MACD This is the acronym for “The Moving Average is a line on a chart that smooths out the recent price history by calculating the average price over 30 or 60 days (or any number of days). moving average convergence/divergence.” Got it? OK, here’s the simple explanation. This graph shows the difference between a Read More…

7-08 Candlesticks Candlesticks are a type of stock chart developed and originated in 17th century Japan. It can be traced back to the world’s first rice futures exchange in the 1600s. In the mid-1700s, a Japanese man named Munehisa Honma developed a way to track the emotions of traders by looking at patterns of supply Read More…

7-07 Wedges and Flags A Wedge in the financial universe describes a triangular shape formed by the intersection of two trendlines. They come together to form an apex. The Wedge doesn’t need to be upward facing, it can also be an inverted triangle. The “falling” Wedge is often called a Flag because it looks like Read More…

7-06 Trendlines You’re probably aware that trendlines are important for your research on potential purchases or sales of securities. Base numbers are equally important to understand the true meaning of any trends you identify. Depending on the type of chart you’re viewing, you’ll want to establish a solid, unbroken trendline that graphically displays the direction Read More…

7-05 Double Bottom A Double Bottom chart will look like a “W.” It indicates that the stock hit a bottom market price, had a brief uptick, and then decreased again to turn a “V” shape into a “W.” The two reverse peaks should be around the same floor price and the time period should be Read More…

7-04 Breakouts A breakout occurs when market prices move through and continue through former highs or lows that had formed ceilings or floors in the past. Commonly called levels of “Support in a stock chart forms at an area where the stock’s price seems to not want to move lower. This is due to the Read More…

7-03 Head and Shoulders Don’t you love the terminology that pictorially associates these charts with their graphic representations? The Head and Shoulders is an extremely popular pattern among investors because it’s one of the most reliable of all chart formations. It also appears to be an easy one to spot. Novice investors often make the Read More…

7-02 Cup with Handle The Cup with a Handle pattern is one of the best-known stock chart patterns. The Cup pattern follows the outline of an inverted semi-circle (U-shape), indicating a price fall, a bottoming out, and a price rise. Afterwards, there tends to be a rather unstable period marked by a sell-off generated by Read More…

7-01 How to Read Stock Charts This chapter will expose you to the most common charts available. Their names and meanings are important to your continuing education and the number of tools you carry in your toolbox in order to evaluate stocks. Understand that it will take some time before you are comfortable reading and Read More…

6-10 Competition In the last chapter, we talked about the importance of diversification. A key to that lesson is that you should strive to have stocks across multiple industries, but also try to have more than one stock in any single industry. When you make your investments, keep in mind that companies in the same Read More…

6-09 New and Improved Products In a capitalist economy, innovation is necessary to survive. A company cannot survive by offering the same products produced the same way forever because some other company will find a way to make a better product, produce it cheaper, or both. This means that for a company to be profitable Read More…

6-08 Management A company can have the best product on the market, tons of cash in the bank, and a huge well of talented staff, and all the customer loyalty in the world – but that can all disappear in a flash with poor management at the top of the company. Likewise, a company with Read More…

6-07 Balance Sheet We mentioned earlier in this chapter that a stock’s value is based on two things: The future earnings of the company The current value of the company So far on this chapter, we have exclusively discussed the future earnings of the company. Future earnings is generally what dictates if a stock’s price Read More…

6-06 Revenue and Earnings Estimates When you’re considering buying or selling a stock, it is just as important to look at future expectations as historical performance. We can read all of the 10-Ks and 10-Qs we want; we can study the Income Statements, Cash Flow Statements, and Balance Sheets until we have them all memorized; Read More…

6-05 EPS, PE Ratios, Cash Flow per Share and ROE OK, so we have discussed sales, operating income, Earnings before interest, taxes, depreciation, and amortization. EBITDA , and net income. Which is the best measure of a company? The answer, unfortunately, is NONE OF THE ABOVE! If Stock A and Stock B are in the Read More…

6-04 Understanding Cash Flow Statements Once you have understood a company’s profitability, take a look at the Statement of Cash Flows because this is the second most important element of Fundamental Analysis, and it frequently needs more than a casual examination. Many experts strongly contend that good cash flow is more important than earnings to Read More…

6-03 Operating Income, EBITDA and Net Income A company’s net income is one of the most critical pieces of data you can pull out of the financial statements because it is this profit that generates cash and cash drives value. A company can produce the most innovative products, be in an industry with minimal competition, Read More…

6-02 The Income Statement-An Introduction The income statement primarily focuses on the company’s revenue and expenses (what they’ve earned and what they’ve paid for) during a particular period of time.  The bottom line shows a net profit or a net loss depending on the company’s performance during that time period.  Companies may complete an income statement whenever Read More…

6-01 Information: 10-Ks, 10-Qs, and 8-Ks The first place to start analyzing a company is to go straight to the source and review the financial information that the company is publishing about itself. In previous chapters we talked about IPOs and what it takes to be a public company in the U.S. To remain a Read More…

5-07 Keep to Your Exit Strategies Rule #7 – Have an Exit Plan and Target for Every Stock Exit Strategies are designed to protect your value! Few experienced traders ever invest in any stock without having an exit strategy. In its simplest form, an exit strategy is a plan to get you out of something Read More…

5-08 Resources You’ve made your first purchases and now you have some idea what to do with them. While you’re not yet an expert, you should now have enough information to create a basic holding strategy and an exit plan. You understand that you should ride your winners and dump your losers. Having a sensible Read More…

5-06 Watch the Volume! Volume is a key indicator of a stock, second only to the bid/ask prices. We briefly mentioned volume before, but as a refresher, this is the total number of trades that have been made on this stock in the last trading day. Watching the volume of your stock can be pretty Read More…

5-05 Know When to Hold’em, Know When to Fold’em So far, we have talked about riding your winners and ruthlessly selling off your losers. Now we need to think about those pesky in-betweeners; the stocks that are not really losing your money but have not been performing very well either. Keep To Your Objectives Protecting Read More…

5-04 Diversify, Diversify and Diversify Rule #4 – Diversify, diversify, and diversify To “diversify” means to pick a variety of stocks in different industries. History shows that at different points in time different parts of the market outperform the others. At times the technology stocks perform well, sometimes it’s the banking stocks, sometimes it’s international Read More…

5-03 Never lose more than 10% Rule #3 – Never, ever, ever lose more than 10% on any single trade. We have talked about both stop and limit orders last chapter and using both to build your returns. But as an investor, always remember your #1 goal is capital preservation. Capital preservation is the concept Read More…

5-02 Don’t Fall in Love With Your Stocks Rule #2 – Don’t fall in love with your stock purchases – winners OR losers (particularly losers). This is often the biggest pitfall to new investors – holding on a stock for too long because you “like it”. You can think of this rule as kind of Read More…

5-01 Ride Your Winners Selling a stock is just as important of an investment decision as buying and you must have a strategy to maximize your profits and minimize your losses. Developing a trading strategy is important to your future investing activities. Even a flawed strategy is better than having no strategy. And trust me, Read More…

4-07 Resources It’s time to decide on how you’d like to construct your portfolio. Whether you decide to invest virtual money or real funds, you should now have a basis to create your own thoughtful plan and strategy. Using your virtual portfolio and trading ability, you can test your strategy and “tweak” it, if necessary, to Read More…

There is an astounding volume of information available from a myriad of “experts” and a plethora of websites. Most are useful to people, but you’ll decide which sources are most useful to YOU. Here is some information on a few popular sources. MSN Money: Offering you stock quotes, financial news, rumors, strategies, and blogs, MSN Read More…

4-06 Stock Screeners Now we have covered some of the concepts that fit into planning your portfolio, heard from some of the experts, and covered how to Buy What You Know. Now we need to focus on polishing off your first portfolio. After you’ve made your plan and got your eye on a few stocks, Read More…

4-05 Meet Peter Lynch Past portfolio manager of Fidelity Magellan, which became the largest mutual fund in the 1990s. Peter Lynch, another globally respected investment genius, also embodies a solid – not exotic – investing strategy. After graduating from Boston College (1965), Lynch was hired as an intern at the company that came to be Read More…

4-04 Meet Warren Buffet Investing in “what” you know based on “how much” you know can provide an excellent return and a higher level of comfort. As an example, the legendary investor Chairman and CEO of Berkshire Hathaway, and generally regarded as the greatest buy and hold investor of the last 40 years. Warren Buffet Read More…

4-03 Buying Stocks that you Know There are tens of thousands of stocks out there in the world. If you have plenty of time on your hands, you could spend all day, every day reading dozens of news sites, checking out all the latest discussion boards, watching all the investing news shows, listening to podcasts, Read More…

4-02 Measuring Risk: The Sharpe Ratio The Sharpe Ratio, named after Nobel laureate William F. Sharpe, measures the rate of return in association with the level of risk used to obtain that rate. It’s a particularly useful tool for novice investors to use as a method tracking “luck” versus “smarts.” An Example of the Sharpe Read More…

4-01 Risk, Reward, and Diversification Risk, reward, and A way of reducing the risk and variances in your portfolio returns by buying a variety of stocks across different industries, market caps, etc. diversification are the most important concepts to understand before you start your portfolio. They are factors in all investment decisions. You must learn Read More…

3-09 Resources Ok new investor, you should be ready to begin. You can now leave the bleachers, put on a uniform, cross the white lines, and play. Stay focused, positive, and realistic. You might not make the Majors right away, but you can enter the investment world armed with solid knowledge, upon which you can Read More…

3-08 Set Goals and Targets You should have a “game plan” for your investing life. Just as you plan your workday, vacation, college financing, golf matches, and other areas of your personal and professional life, you need a plan, objective, and goal for your investment activities. Spend some quality time with yourself, thinking about what Read More…

3-07 How to Record Gains and Losses Unfortunately, when it comes time to file your tax return, the IRS wants to know how much money you made or lost in your brokerage account. Your brokerage firm will even report to the IRS your total proceeds from all of your sales of stocks, but they don’t Read More…

3-06 Short Selling So far, we’ve talked about how to make your first trades – buying a stock you think will get more valuable. But what about if you are SURE a stock is about to tank? Wouldn’t it be great if you could make profit in both directions? With short selling, you can! What Read More…

3-05 Buying on Margin When you are opening a real brokerage, you will be asked if you want to open a Margin Account. Buying on margin means that you purchase securities using some of your own cash and you take a loan from your broker to complete the purchase. The collateral for the loan is Read More…

3-04 Order Terms Now that you know some of the basic order terms, you can use Limit, Stop, and Trailing Stop orders to start building your portfolio, keeping an eye out for good deals and protecting yourself against loss. But when you go to actually place your order, there is one more option that pops Read More…

3-03 Types of Orders-Market, Limit, Stop Once you have the ticker symbol for the company you wish to trade, you are ready to place your first order. Go to your virtual trading account and you’ll see several options for order type—market, limit, stop, and trailing stop. You have already found the symbol to trade “LUV” Read More…

3-02 Understanding Stock Quotes A stock quote gives essential information about a particular stock at a point in time. The quote normally includes information such as the name of the company, the ticker symbol, the price, the day’s high and low prices, and the trading volume. Details Usually when you get a stock quote, you Read More…

3-01 How to Look Up a “Ticker Symbol” The first thing you must understand about trading stocks is that the exchanges have assigned each stock a unique “ticker symbol” for identification purposes. When researching stocks, getting quotes, and placing trades, you usually have to know the ticker symbol. Stock ticker symbols are usually 1 to Read More…

2-11 Resources Now you should be a bit more familiar with how the stock market works, what drives prices, and general trends to look out for. The next chapter is all about choosing your first stock and making your first trade! Glossary Supply – The total quantity of a good, service, or security available for Read More…

2-10 Buying Individual Stocks Versus Investing in Mutual Funds As a newer investor, you should also be aware that you can save some research time by investing in mutual funds instead of individual stocks. Mutual funds contain a mix and diversity of stocks in which you will spread out one investment into many small blocks Read More…

2-09 Why Stocks Are a Good Choice For Investing In this course, we generally advocate that stock market investing is an excellent choice to receive consistently high Return on Investment (ROI). This does not mean we think everyone should be “stock picking” – but that stocks, mutual funds, and ETFs generally provide the best return Read More…

2-08 What is a Brokerage? When you are ready to start buying your own stock, you won’t withdraw some cash from the ATM, head to New York, and look for someone with paper shares to sell. Instead, you would open an account with a stock brokerage, where you will make your trades. What is a Read More…

2-07 The Danger of Trying to Time the Market The mere perception that a market is becoming Bearish is not a predictor of disaster. Fortunes have been made in A prolonged period of pessimism and falling stock prices that seems to feed on itself and generates even more pessimism and even lower stock prices. Bear Read More…

2-06 Bull vs. Bear Markets Business and economic popular news will often refer to “Bull” or “Bear” markets. You probably already have some idea what this means – “Bull” markets tend to be going up, while “Bear” markets tend to be going down. What is a Bull Market? A “Bull Market” means that investors are Read More…

2-05 Market Timing and Moving Now that you know what the stock market is and what role the Stock exchanges are simply organizations that allow people the ability to buy and sell stocks. Stock Exchange plays, let’s take a step back and look at how stock prices and the economy move. As you might expect, Read More…

2-04 Public versus Private Companies & IPOs versus Secondary Market Securities Now that you know what an exchange is, it’s necessary to make a very important distinction between what shares trade on exchanges and what shares don’t. Most companies are private companies and don’t trade on exchanges. The barber shop and the florist on the Read More…

2-03 Other Stock Exchanges In addition to the New York Stock Exchange, there is also the American Stock Exchange (AMEX) and NASDAQ. In the past, the NASDAQ was for smaller companies that were just getting started, and it was prestigious for them to move up to the NYSE or AMEX. These smaller companies included a Read More…

2-02 A History Lesson – Wall Street Wall Street” is a street in New York City, near the southern end of Manhattan Island. It is the home of the New York Stock Exchange, and the biggest center of stock trading and finance in the world. History The first European colony in what we now know Read More…

2-01 What Are Stock Exchanges? In the last lesson, we used a simple example of 10 buyers and 10 sellers who got together in the same room to make trades of one company’s stock. In the real world, there are hundreds of millions of people and companies trading trillions of shares of millions of company’s Read More…

1-13 Resources Congratulations, you are through the first chapter! This is a glossary review and some extra resources for more information before we continue on to the chapter exam. Glossary Bank accounts – a depository account at a bank that acts as a secure way to store your money and withdraw it later. Checking Accounts Read More…

1-12 Recent Performance of Investments Now that we have looked at several different types of investments, we can compare how they have performed over time. In this case, we will pretend we invested $10,000 in Stocks, Gold, Commercial Real Estate, Residential Real Estate, and a Savings Account in January of 2010, and pulled our money Read More…

1-11 Real Estate If you are a homeowner, your home is probably where you keep most of your wealth. Everyone hopes to be able to sell their home for more than they paid for it – which means that every homeowner is a real estate investor! “Real Estate Investing” means making money based on buildings Read More…

1-10 Foreign Currency and Foreign Stocks You just got some insider information – Nintendo is about to announce a new Zelda game, coming out on their new console. Gamers are getting pumped up, this is a sure-fire hit. As a savvy investor, you think now might be a good time to invest in Nintendo! But Read More…

1-09 Gold and Other Precious Metals When we covered commodities, we mentioned iron and copper, but not Gold and Silver. That is because Precious Metals operate by different rules than other commodities – and are very different to investors. This is because unlike iron or copper, which is just used as inputs for other industry Read More…

1-07 Bonds Unlike Stocks are “equity investments” which means that individuals that own stock shares of a company actually own part of that company. stocks, which are equity instruments, A debt obligation of a company, the U.S. Treasury Department, or a city where the borrower receives funds (usually in increments of $1,000), makes semi-annual interest Read More…

1-06 ETFs (Exchange-Traded Funds) ETFs are a cross between mutual funds and stocks. ETFs are simply a portfolio of stocks or A debt obligation of a company, the U.S. Treasury Department, or a city where the borrower receives funds (usually in increments of $1,000), makes semi-annual interest payments based on the coupon rate, and eventually Read More…

1-05 Mutual Funds A mutual fund is a type of investment where a money manager takes your cash and invests it as he sees fit, usually following some rough guidelines. For example, the Fidelity Group has a fund that specializes in finding high dividend paying Stocks are “equity investments”, which means that individuals that own Read More…

1-04 Stocks Stocks are “equity investments” which means that when you own shares of a company you own part of that company. For example, if you own 1,000 shares of Apple Computer stock and Apple has 1,000,000 shares that are “issued and outstanding,” then you own 0.1% of the company. If Apple were then to Read More…

1-03 Certificates of Deposit (CDs) With a An investment choice at most banks where you agree to deposit a specific amount of money for a fixed period of time (this is called the maturity). By agreeing to keep your money at the bank for a certain length of time, the bank usually pays you an Read More…

1-02 Basic Bank Accounts Bank accounts are issued by banks, credit unions, and savings & loan institutions as a secure way to store your money and make it easily accessible later (without carrying around all your cash everywhere you go). If you are sitting with your first $500, you usually have two options for accounts: Read More…

1-01 Understanding Investment Choices The first time Tiger Woods grabbed a golf club he couldn’t hit the ball perfectly straight 300 yards and the first time Michael Jordan touched a basketball he couldn’t dunk it, so don’t think that you will be able to earn a 100% return in the first year. Before Tiger could Read More…