The purpose of Getting Started in Stock Investing and Trading, Illustrated Edition is to present you with a range of ideas, strategies, and market realities, all aimed at helping you to identify your appropriate risk tolerance level, and then determine which investing and trading ideas are going to work best for you. Everyone is different, so no quick fix or formula is going to work for everyone. In fact, trying to duplicate someone else’s investing or trading system is not a wise idea because your unique profile (including income, assets, experience, and perceptions of markets and risks) demand that your approach makes sense.
The stock market has become known as a volatile place to invest. Many risks and opportunities are available to investors and traders alike. Any novice stock market investor needs to develop a complete understanding of the risks they face when money is placed in the market.
This does not mean you should avoid investing; it does point out how important it is to become educated about risk in the stock market. There are no fast or easy ways to gain knowledge or a trading edge. Paid services, the Internet, and financial planners all offer expert services, but in the final analysis it all comes down to each individual learning for themselves what works and what does not.
Are you an investor or a trader? This book makes a distinction between investing and trading. An investor is an individual interested in identifying and buying shares of stock for long term price appreciation, also called growth; and earning superior returns from dividends while protecting their capital. Part 1 of this book includes chapters about how to develop an investing program to build your portfolio based on the principles of fundamental analysis.
A trader is more interested in moving in and out of investment positions in the short term, making a higher volume of smaller profits. Traders rely on reading charts, spotting short-term trends, and taking advantage of the market’s tendency to overreact to current news (meaning that the prices of stocks tend to move too far in one direction, and then correct by reversing). This price swing is easy to spot in hindsight, but more difficult to anticipate ahead of time. Successful traders work on their skills in identifying the signs based on price charts. Part 2 is focused on trading skills and techniques, and is based on the principles of technical analysis.
Today, many people are shy about the market. The volatility of recent years is a definite problem for anyone who puts capital at risk, but does that mean that staying out of the market makes sense? It does not. The alternatives are bleak. Savings rates are lower than ever before and do not outpace inflation. This means that even the modest inflation of recent years erodes the purchasing power of money left in savings. The only sensible alternative is to develop a program of investing and trading that minimizes risk while offering superior returns. Avoiding the market is just as great a problem as taking too many risks within the market; so the best approach is to develop a portfolio defensively.
A “defensively” built portfolio is one that is developed with complete knowledge about risk and opportunity, which you build and manage based on thorough research, acquired knowledge, and resistance of market forces. This book is designed with this necessity in mind. In the future, markets will go through cycles of relatively low volatility, followed by highly erratic months or even years. Investors and traders can earn profits in all kinds of markets, assuming that they have built a defensive portfolio and avoided taking risks they cannot afford. This makes it essential not only to understand risks, but also to define where you fit in the risk spectrum. Most people are going to be somewhere in the middle between extreme conservatism and extreme speculation, but that is a broad range. For this reason, both of the first two sections of the book begin with chapters examining and explaining a range of different risks.
The purpose in this endeavor is not to provide easy answers, but to help you to begin your journey into acquiring knowledge about a complex and changing stock market. Knowledge reduces risk and increases profit. This is the basic premise that has dominated the preparation of this book. Since publishing the first edition, the markets have become even more volatile than in the past. This is in some respects a disturbing trend because it means that risks are high for everyone. However, in another sense volatile markets present many opportunities that are not to be found in calmer, less volatile investing environments.
Several new features have been added to this edition. This illustrated edition is designed to appeal visually as well as to greatly improve on the connection between graphics and text. A new Chapter 1 describes the nature of stock investing by examining common myths and beliefs. A new Chapter 6 discusses dividend strategies. Many investors ignore the importance of dividends; but this form of income may represent a very important segment of overall returns.
In Part 2, Chapter 8 has been added to set up the following chapters with an examination of the nature of stock trading. In Chapter 13, you find a summary of signals and confirmation of price movement. These new chapters, together with updated chapters from the first edition, provide novices with an overview of the market; and provide more experienced investors and traders with an important overview of how the market works, keeping risk in mind, and setting up policies and goals to enhance your success in the ever-changing and volatile stock market.
- The Nature of Stock Investing
- Investment Risks
- Value Investment and Growth Investment
- Market Strategies
- Fundamental Analysis
- Dividend Strategies
- Alternatives: Stocks or Mutual Funds
- The Nature of Stock Trading
- Trading Risks
- Trading Methods: Day and Swing Trading
- Charting Tools and Interpretation
- Essential Technical Indicators
- Signals and Confirmation
- Technical Analysis, Dow Theory, and Practice
Getting Started in Stock Investing and Trading, Illustrated Edition By Michael C Thomsett pdf