The Practical Guide to Intermediate Investment Techniques

By K.C. Staar

An Unconventional and Comprehensive Guide to everything Investing:

This book is the second book in a series of books designed to help those that are looking to either take charge of there finances.
If you are not interested in day trading this book will help all those that are looking to further understand the world of Stocks, bonds and everything in between.

• Language: English
• Publisher: K.C. Staar
• Release date: Aug 9, 2011
• ISBN: 9780987686619

K.C. Staar

35 year old Married Father of Three Disillusioned with stock broker and so called retirement experts.

Book preview

Intermediate Investing

by

K.C.Staar

SMASHWORDS EDITION

* * * * *

PUBLISHED BY:

Staar DD Services Ltd.

Fundamentals of Investing

Copyright © 2010 by K.C. Staar

Smashwords Edition License Notes

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Table of Contents

Disclaimers

1 The Psychology of Investing

1.1 Trading Psychology

1.2 Market Psychology

1.3 Market Psychology Technical Indicators

2 Active Trading Styles & Strategies

2.1 Day Trading

2.2 Scalping

2.3 Momentum Trading

2.4 Technical Trading

2.5 Fundamental Trading

2.6 Swing Trading

2.7 Position Trading

2.8 Creating a Trading Strategy

3 Trading Markets

4 Intermediate Fundamental Analysis

4.1 GAAP 32

4.2 Statement of Cash Flows

4.3 Income Statement

4.4 Balance Sheet

5 Advanced Technical Analysis

5.1 Continuation Patterns

5.2 Reversal Patterns

5.3 Blending Technical & Fundamental Analysis

6 Trading Platforms

6.1 Broker-Provided Platforms

6.2 Robots & Black Boxes

6.3 High Frequency Trading

Disclaimers

The authors and publishers of the material contained herein have used their best efforts in its preparation. They make no representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the contents of this material. The information contained herein is strictly for educational purposes. Therefore, whether and how you apply it is fully your responsibility.

There is no guarantee that you will earn any money using any of the techniques or ideas presented herein. Examples in this material should not be construed as a promise or guarantee of earnings, or as a recommendation to buy any specific security or investment product. Investing success is dependent upon a wide range of factors, including without limitation the time you devote to the activity, your finances, and your level of knowledge and skill. We cannot guarantee your success or take responsibility for your actions.

The material herein may contain information that includes or is based upon forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events, and can be identified by the use of such words as anticipate, expect, project, intend, plan, believe, and other words of similar meaning or connotation in connection with a description of potential financial performance.

The authors and publishers disclaim any warranties (express or implied), merchantability, or fitness for any particular purpose, unless such disclaimers are prohibited by state law. THE AUTHOR AND THE PUBLISHER SHALL IN NO EVENT BE HELD LIABLE TO ANY PARTY FOR ANY DIRECT, INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL, OR OTHER CONSEQUENTIAL DAMAGES ARISING DIRECTLY OR INDIRECTLY FROM ANY USE OF THIS MATERIAL, WHICH IS PROVIDED AS IS AND WITHOUT WARRANTIES.

As always, the advice of a competent legal, tax, accounting, or other professionals should be sought.

INVESTMENT DISCLAIMER

No statement in this material should be construed as a recommendation to buy or sell a security or to provide investment advice. All investors should consult a qualified professional before trading in any security. Stock trading, option trading, and other investment techniques involve risk and are not suitable for all investors. Past performance does not guarantee future results. The authors and publishers make no representation that the information and opinions expressed are accurate, complete, or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. This material does not contain a complete discussion of the benefits and risks of different investment methods. All investments are subject to risk, including possible loss of principal.

TAX DISCLAIMER

The material herein is being provided to you as educational material with the express understanding that we are not engaged in rendering legal, accounting, or other professional service(s). The scope of our service is solely educational. If legal advice or other expert assistance is required, the services of a professional should be sought. Nothing herein is any substitute for the services, advice, or counsel of a properly licensed CPA or attorney in the relevant state!

IRS CIRCULAR 230 NOTICE: To the extent that the information herein concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

1 The Psychology of Investing

Like any other human activity, the financial markets have a psychological aspect. While many believe the markets to be rational—more on this momentarily—there is undeniably a non-rational, emotional factor involved (more at some times than at others), and you will ignore its potential impact at your own peril. Market psychology refers to the generalized sentiment in the marketplace at a given time, and so is a blend or average of the feelings and attitudes of thousands of individual investors. Technical analysis factors can measure the current market psychology and attempt to predict the direction it is likely to drive the market. The term market sentiment is similar, but is generally used to refer simply to the overall bullish or bearish trend.

Individual investors, of course, compose the market, and at the level of the individual, we talk about trading psychology. It should come as no surprise that people tend to be emotional about their money, nor that those emotions can impact behavior.

1.1 Trading Psychology

If you choose to become involved in the financial marketplace, and particularly if you are going to actively trade, you must understand your own emotional tendencies and reactions. When emotions dominate investing decisions, the outcomes are generally negative. The three primary hazards are greed, fear, and paralysis.

Greed has played a central role in economics since the first human possessed something that another human wanted. While the desire to acquire and possess drives our economic and financial systems, once that desire transforms into greed, it becomes corrosive. Greed tends to lead investors into two main traps. One is the unwise investment, choosing to put money into something that sounds too good to be true (and undoubtedly is). Con men have known, and exploited, this aspect of human nature from time immemorial.

The other can best be described as issues of bad timing. Acting out of greed, an investor may invest when an asset is becoming overvalued. While buy low and sell high seems to be unnecessarily stating the obvious, so often that is not what happens. Instead, investors watch a stock or other asset climb into the stratosphere and begin to envy those who are making substantial profits. Greed drives them to jump on the bandwagon, regardless of what fundamentals may say about the current valuation of the asset in question. The result is that they buy in near or at the top, the asset subsequently plunges in value, and they lose money.

Conversely, an investor may hang on to a successful investment as it climbs in value, hoping to wring just a few dollars more of profit before selling, and ultimately wait too long. The top comes, passes, and the asset price falls, and now what could have been a major gain has been turned by greed into a painful loss—hence the old bit of Wall Street wisdom, Pigs get slaughtered.

Fear can cause an investor to miss a good opportunity because of the associated risk. It may also cause him or her to withdraw from an investment too early, substantially reducing profits. In a bad market, it may even push the investor to withdraw completely and move into the safety of cash—and doing so in a down market will usually mean taking losses on every, or nearly every, active investment.

The third hazard is paralysis, sometimes referred to as analysis paralysis. The investor may become so caught up in the analysis of every detail of a potential investment that he or she never actually makes it, waiting for the perfect time and everything to be right. The fallacy, of course, is that no investment will ever be perfect, so the wait for perfection is a wait without end.

Typically, an investor will be routinely subject to either greed or fear, depending on his or her risk tolerance and other psychological traits; analysis paralysis can be seen as an offshoot or variant of fear. Either can cripple profits and lead to spectacularly unsuccessful investing. The key to overcoming these emotions is twofold: have a plan, and have the discipline to adhere to that plan, no matter what your emotions are telling you.

Decide, for example, in advance at what price you will buy or sell a particular stock. Decide what macroeconomic, company performance, or market events will drive your trades. Make those decisions, ensure that you are satisfied with your research and your facts before making the trade, and then stick with that plan. Fear in particular can be nonspecific; sometimes simply nailing down what it is you are afraid will happen can mitigate it, but knowing that you have a specific plan to prevent a negative outcome is even more powerful.

Since knowledge empowers better decisions, educate yourself about what you are doing,