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The Stock Market Course / Edition 1

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Overview

Praise for The Stock Market Course

"An essential guide for anyone who wants to avoid getting burned in the stock market. This book tells you how to make money and how not to lose it. Risk management is something that institutional investors have long employed to limit their losses and boost their long-term gains. This book explains risk thoughtfully and enjoyably."-Michael Molinski, Mutual Funds Editor and International Editor, CBSMarketWatch

"An excellent book that explains all of the critical factors that affect your investments. Comprehensively discusses how to analyze companies and markets. The simple descriptions paired with valuable online resources allow the reader to obtain critical information for making investing decisions. With the breadth of this coverage, you can't help but learn something new!"-Victoria Vestal, Yahoo! Finance

"Fontanills and Gentile have written the comprehensive stock market book-stuff you want to know now, stuff you'll have to know later. Complete the workbook and you'll have fast-tracked your investing foundation."-Michael Smith, Cofounder of the BigEasy Investor www.bigeasyinvestor.com

"A classic must-read primer for both the novice and experienced investor...comprehensive and easy-to-read, this book provides an innovative approach for learning how to survive in today's volatile markets. If you need the bottom line on trading do's and don'ts, read this book!"-Julie Craig, eSignal

"A comprehensive book on the equity and option markets for both the new and experienced investor. Readers can benefit from increased knowledge and a focused and disciplined approach to the markets."-Eric Alexander, Managing Director, Wall Street Access (www.wsaccess.com)

"This is the best course I've seen in 20 years in the investment business...profit from it."-Clay H. Womack, Chairman & CEO, Direct Capital Markets, Inc.

"The best stock market introduction ever written for traders and investors searching for the path of trading success."-Francis Gagnon, Producer for Active Traders (LiveCharts & QCharts), Quote.com (www.quote.com)

"If you wish to increase your knowledge and profitability in trading and investing, here is where you'll learn."-Bill M. Williams, PhD, CTA, and author of Trading Chaos and New Trading Dimensions

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Editorial Reviews

Booknews
Provides beginners with a foundation in fundamental and technical aspects of trading stocks and other major investments. Explains in plain language the basic rules and mechanics of stock investment, defines terms, concepts, and procedures, and shows how to evaluate the risks and benefits of stocks. Discusses all types of major investment instruments, gives proven risk management techniques, and explains basics of market psychology and sentiment analysis. Fontanills is head of a hedge fund and money management company. Gentile works for an investment research firm. Annotation c. Book News, Inc., Portland, OR (booknews.com)
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Product Details

  • ISBN-13: 9780471393153
  • Publisher: Wiley
  • Publication date: 3/14/2001
  • Series: Wiley Trading Series , #96
  • Edition description: 1 ED
  • Edition number: 1
  • Pages: 464
  • Sales rank: 474,706
  • Product dimensions: 6.38 (w) x 9.33 (h) x 1.52 (d)

Meet the Author

GEORGE A. FONTANILLS heads Pinnacle Investments of America, Inc., a hedge fund and money management company (www.piafunds.com). Pinnacle has recorded amazing returns for its investors with high-profit, low-risk trading strategies. For many years, George Fontanills has been publishing his strategies through www.optionetics.com, a free Web site, and by teaching at Optionetics seminars. Prior to Pinnacle, he was a principal in a floor operation on the American Stock Exchange. He has been featured in the Wall Street Journal, Barron's, Red Herring, and TheStreet.com, and appears on Bloomberg, CNNFN, and CNBC. His other bestselling books include Trade Options Online, The Options Course, and The Options Course Workbook.
TOM GENTILE is Chief Operations Strategist for the Global Investment Research Corp. and Optionetics.com, and is also a contributing writer in numerous publications, including Fortune, Barron's, and the Wall Street Journal. He is George Fontanills's trading partner and coinstructor at Optionetics seminars. He is currently hard at work with George on a new book entitled The Volatility Course, to be published by John Wiley & Sons in 2002.

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Read an Excerpt

Audentis fortuna juvat.
"Fortune favors the bold."
—Virgil, Aeneid, X

I remember the first time I got a taste of the markets. I was facing a few personal problems in my life, when I received something in the mail about trading. Without much thought, I decided to take a chance on a home study course on trading the markets using some simple technical analysis techniques. When I received this manual, I completely dove into it and let it consume me for a few weeks while I trained myself. Gradually, I started to understand market concepts, mathematics, and how to enter and exit orders. I quickly became convinced that I was going to be a millionaire in no time.

After finishing the course, I tried paper trading a few times. But the whole time I just kept thinking, "This is just too easy. I can't believe I didn't think of doing this before." Within six months from my initial trade, I blew out my first account completely. I set about blaming everything else except the man in the mirror. In retrospect, I realize that my biggest problem in trading early on was twofold: not having the specialized knowledge about what it was that I was trading, and not having an entry and exit plan for every event that could take place once my trade became reality. I was simply too focused on the dream of becoming a rich, lazy trader who sat in a hammock on some remote island, while gobs of money dropped each day into my bank account.

A lot has changed since the 1980s when yuppies, power lunches, and full-service brokers seemed to dominate the scene. Yuppies have turned into "dot-commers," while the broker arena has turned completely upside down. At this moment in time, 20% of all stock transactions are executed online, and this number is expected to triple within the next five years. Online trading has its pros and cons. The advantages of online trading are many. First, commissions on a stock transaction are quite cheap and getting cheaper every day—as low as a penny a share when placing through a direct access broker. When buying in bulk (5,000 shares), that number can even be less. Another great reason to be trading online is that with the developing technology, executions are becoming split-second fast, allowing very little lag time between placing an order and getting filled. With real-time streaming feeds, you can see bids and offers, as well as size for each, and not have to wonder whether your limit got filled. But drawbacks do exist. The biggest potential problem that comes with all this technology is that the major trading decisions have become the direct responsibility of the individual trader. Without a professional by your side to help you, it has become your job to get educated on the ins and outs of the market, both technically and fundamentally.

Why read this book? One answer: specialized knowledge. We are laying the groundwork to help you understand that trading the markets is not like any other corporate career. Specialized knowledge is the best thing you can receive before taking on any venture. This is where a good education in the markets will save you thousands of dollars in mistakes. It amazes me how many people will try to save a few dollars trying to figure this market out on their own, and in the process spend thousands of dollars in losses to learn the markets. Bottom line: You will pay to learn this business one way or another. The biggest problem with learning it the hard way is that it will kill your ego (and your account) very quickly.

This book is designed to satisfy the needs of the novice trader. It provides a comprehensive beginner's education that includes as many of the important aspects of trading stocks that we could fit into one volume. Placing a trade is the easiest part. It takes a mere nanosecond to complete. It's what you do before and after the trade is placed that will determine your outcome. To become a successful investor or trader, you have to start with the basics, develop an understanding of the types of accounts to set up, project your goals as a trader, and accurately assess your time availability. These first steps are crucial to your success in this otherwise hectic business.

In many ways, introducing the world of investing to a beginner is a bit like attempting to explain American culture to an off-world alien. After all, the stock market is a world unique unto itself. It has its own strange rhythms and an infinite number of tiny details that require explanation. To be successful, you need to amass enough weapons to effectively do battle in its highly competitive arenas. Knowing the language of the market is only part of it. In addition, there are a multitude of players, trading strategies, analysis techniques, ordering protocols, and regulations that make or break you as an investor.

In truth, the stock market may hold the key to making your dreams come true or allowing your nightmares to become reality. It can beat you down or make you rich. To sway the delicate balance between the two, every conceivable piece of the puzzle must be used to your advantage. At times, things may turn ugly. Yet, history has shown, there is opportunity in every crisis. As an investor, success lies in turning seemingly dire situations into profitable investment opportunities. In other words, you must learn to master the art of investing to become successful at it.

Just how does one go about mastering the art of investing? Learning to be a profitable investor is an uphill battle. Just figuring out how to get started may seem like an overwhelming challenge. Odds are that you'll lose money before you make any at all. There are neither any get-rich-quick strategies nor foolproof tricks of the trade. Learning to master the art of investing requires knowing the ground rules, being able to filter out unnecessary information, gaining practical experience before you run out of money, and a true passion for the game.

Let's face it: People play the stock market to make money. Although the possibility of loss always exists, investors prefer to concentrate on the triumph of profit-making instead. There's something irresistible about getting more money back from an investment than you originally paid for it. To successfully compete with thousands of market analysts, institutional money managers, professional brokers, and Internet-savvy traders, you have to be able to make accurate and timely decisions. You have to arm yourself with enough knowledge to know whether an investment is worth the risk.

Unfortunately, many novice traders depend on tips from brokers and intuitive hunches. They end up placing impractical trades that often result in disappointing losses. To be successful, you have to stay in the game long enough to make money at it. You need to improve your skills to the point that your investments make consistent profits. Hence, investing seems full of catch-22s: It takes money to foster experience; and it takes experience to make money.

One of the most obvious ways of making money in the stock market is by owning shares of premier U. S. companies. However, with more than 10,000 stocks and 3,000 stock options traded at the major stock exchanges, choosing a winner is not easy. One strategy that has worked well for me has been identifying growth stocks and trying to buy them early in their growth cycle. Basically, for a company to grow, it has to continually expand its business. A company can do this by reinvesting profits toward the development of new products and services. If a company grows and is well managed, the company's revenues and profits increase simultaneously. An increase in a company's profitability and net worth can, in turn, lead to an increase in the value of the company's stock. For me, spotting a company in the early stages of the growth cycle has proved to be an integral part of my investment success. But that's just one piece of the puzzle.

To an extent, this book has three goals. The first is to make stock investing relevant to your particular situation. During my years of teaching trading seminars, investors have continually asked for specific recommendations. Although I always have investment ideas, it's difficult to make specific suggestions because everyone's situation is different. In other words, a trade that seems ideal for me may well be unsuitable for someone with a totally different financial condition, time availability, and risk tolerance. It would be like a doctor prescribing medicine without doing an examination first. So, the first goal of this book is to help you evaluate your current financial situation and to determine if trading stocks fits your lifestyle.

The second goal of this book is to make the case for stocks over any other investment. If successful and appropriate to your individual financial situation, investing in the stock market can be the most important decision you ever make.

Some may object and suggest that the stock market is a risky place. True enough, day-to-day, the stock market moves up and down—sometimes violently. However, over the long haul, stocks have proven themselves to be the most effective way of maintaining one's purchasing power and standard of living. It is an exciting time to be an investor. The world is embracing the market system and that creates opportunities for other entrepreneurs to obtain enough capital to implement their ideas, grow profits, and to ultimately increase shareholder value.

The third goal is to teach you how to filter out unnecessary information so that you can focus on what's really important. The advent of the Internet has opened up a Pandora's box of financial information. But how much of this information is pertinent to the finding of promising investment opportunities? There are a multitude of analysis techniques that can be used to gauge market performance. The trick is to use the techniques that help you find the right kind of stock to fit your financial profile.

The initial chapters of the book provide an introduction to various investment instruments including cash equivalents and bonds as well as stocks, mutual funds, and indexes. All of these instruments are part of a balanced investment portfolio. To dispel the myth that options are risky, an in-depth section on options is included to help you see options for what they truly are, a risk-adjusted instrument.

Once you get an idea of how to diversify your assets, it's time to get educated as to the specifics of stock fundamentals. Screening real-market moving fundamentals will save you thousands of dollars in mistakes. Just knowing what a P/E ratio is doesn't cut it anymore. In this new era of fundamental analysis, investors have to look beyond old-century thinking to adapt to the new-age style of fundamental thinking. Understanding the fundamentals as presented here will clarify for you what to look for and what to avoid in company statistics. The introduction of technical analysis and how it can be combined with fundamental analysis will help you to develop a more precise entry and exit system. From the beginnings of moving averages and trends to advanced techniques such as oscillators and breakout indicators, this section will prepare you to fine-tune your entries and exits in the stock market. No analysis section can be truly complete these days without a section on the psychology of the markets. Sentiment analysis is filling an important gap between fundamental and technical analysis and can be extremely helpful in the development of a contrarian approach. In addition, the Appendixes are filled with all manner of important lists and informational charts. A glossary can be found online at ....

Investing is such a unique journey for each one of us. George and I have done our best to eliminate the superfluous material and concentrate on those key elements that have really helped us to succeed. Rather than trying to teach you everything you've always wanted to know about trading, this book sets forth a strong stock investing foundation—a stepping-stone if you will—for your own journey.

Since one of the keys to learning is repetition, I have included "Roadmaps to Success " at the end of each chapter to enable readers to have a step-by-step guide to using the information in each chapter. The hardest part of learning to trade is making the transition from theory to real-world trading. The roadmaps are designed to give you a quick rundown of what you need to know and how to get going. There is also an accompanying book, The Stock Market Course Workbook, available for those of you up to the challenge of studying this book in greater detail.

With the proliferation of the Internet, it's now up to individual investors and traders to become self-educated on the art of stock speculation. This book will provide you with the tools necessary to begin to make decisions based on more than just a hunch. Trading is a vast realm of uncertainties. I hope this book provides an anchor for you as you weather the storms and enjoy the calmer waters of the investment arena. Knowledge and perseverance are the keys to smooth sailing and eventual trading success. I hope this book provides you with a better understanding of what you're up against and how you can use the tools at hand to enjoy a successful career in the stock market.

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Table of Contents

Foreword.

Welcome to the Stock Market.

Solving the Broker Dilemma.

The World of Stocks.

Critical Trading Approaches.

The Versatility of Options.

Broad Market Analysis.

Exploring Fundamental Analysis.

Analyzing Company Reports.

Technical Analysis Unveiled.

Sentiment Analysis Essentials.

Studying the Masters.

Taking Advantage of Market Behavior.

The Path to Trading Success.

Appendix A: Financial Profile Templates.

Appendix B: Stock Analysis Template.

Appendix C: Market Time Line.

Appendix D: Basic Strategy Reviews and Risk Graphs.

Appendix E: Options Expiration Month Codes.

Appendix F: Strike Price Codes.

Appendix G: Variable Option Deltas.

Appendix H: Intermarket Relationships.

Appendix I: Lists and Tables.

Appendix J: Types of Orders.

Appendix K: Exchanges and SEC.

Appendix L: Media Sources and Web Sites Guide.

Appendix M: Online Brokerage Directory.

Appendix N: Formulas.

Index.

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