Introduction 1 About This Book 2 Foolish Assumptions 2 Icons Used in This Book 3 Beyond the Book 3 Where to Go from Here 4 Part 1: Getting Started with Trading 5 Chapter 1: The Ups and Downs of Trading Stocks 7 Distinguishing Trading from Investing 8 Seeing Why Traders Do What They Do 8 Successful Trading Characteristics 9 Tools of the Trade 10 Taking Time to Trade More Than Just Stocks 10 Position trading 10 Short-term swing trading 11 Day trading 12 Going Long or Short 12 Managing Your Money 12 Understanding Fundamental Analysis 13 Getting a Grip on Technical Analysis 14 Putting Trading Strategy into Practice 15 Trading at Higher Risk 17 Remembering to Have Fun! 17 Chapter 2: Exploring Markets and Stock Exchanges 19 Introducing the Broad Markets 19 Stock markets 20 Futures markets 20 Bond markets 21 Options markets 22 Reviewing Stock Exchanges 22 New York Stock Exchange (NYSE: ICE) 22 NASDAQ 24 Amex (now NYSE MKT LLC) 25 Electronic communications networks (ECNs) 26 Understanding Order Types 26 Market order 27 Limit order 27 Stop order 28 Stop-limit order 29 Good-''til-canceled order 30 Other order types 30 Chapter 3: Going for Broke(r): Discovering Brokerage Options 31 Why You Need a Broker 32 Exploring Types of Brokers and Brokerage Services 32 Full-service brokers 32 Discount brokers 34 Direct-access brokers 34 Proprietary trading firms 36 Futures brokers 36 Services to Consider When Choosing a Broker 36 Types of orders supported 36 Data tools 37 Charts 37 ECN access 38 Knowing the Types of Brokerage Accounts 38 Cash accounts 38 Margin accounts 38 Options 39 IRAs and other retirement accounts 39 Choosing the Right Broker for You 41 Considering more than price 41 Doing a little research 42 Understanding how you''ll be paying 43 Getting to Know the Rules 43 Margin requirements 43 Settling trades 45 Free riding 45 Chapter 4: Putting Your Key Business Tool to Work: The Computer 47 Making Use of Your Computer 48 Identifying trading candidates 48 Managing your account 49 Improving your trades 49 Finding Price Charts 49 Checking out Internet charts with delayed prices 51 Considering Internet charts with real-time prices 51 Looking into charting software 52 Digging Up Fundamental Data 53 Accessing Analyst Reports 54 Selecting a Trading Platform 54 Browser-based trading environments 55 Integrated trading platforms 56 Features to consider 57 Determining Computer Requirements 58 Weighing Windows versus Mac versus Linux 58 Configuring your computer system 59 Accessing the Internet 61 Picking a browser 61 Securing your computer 61 Part 2: Reading the Fundamentals: Fundamental Analysis 63 Chapter 5: Fundamentals 101: Observing Market Behavior 65 The Basics of the Business Cycle 66 Understanding how periods of economic growth and recession are determined 67 Using economic indicators to determine the strength of the economy 68 Relating bull markets and bear markets to the economy 70 Employing a Sector Rotation Strategy 70 Early recovery 71 Full recovery 72 Early recession 72 Full recession 73 Sector rotation 73 Understanding Economic Indicators 74 Interest rates 75 Money supply 76 Inflation rate 76 Deflation 78 Jobless claims 79 Consumer confidence 80 Business activity 80 Using Data from Economic Indicators 82 Chapter 6: Digging Into Fundamental Analysis 85 Checking Out the Income Statement 86 Revenues 87 Cost of goods sold 87 Gross margins 88 Expenses 89 Interest payments 90 Tax payments 91 Dividend payments 91 Profitability 92 Looking at Cash Flow 93 Operating activities 94 Financing activities 95 Investment activities 96 Scouring the Balance Sheet 97 Analyzing assets 97 Looking at debt 98 Reviewing goodwill 99 Determining Stock Valuations 99 Earnings 100 Earnings growth rate 100 Figuring Your Ratios: Comparing One Company''s Stock to Another 102 Price/earnings ratio 102 Price/book ratio 103 Return on assets 103 Return on equity 103 Chapter 7: Listening to Analyst Calls 105 Getting to Know Your Analysts 106 Buy-side analysts: You won''t see them 106 Sell-side analysts: Watch for conflicts 106 Independent analysts: Where are they? 109 The Importance of Analysts 109 Tracking how a company''s doing 110 Providing access to analyst calls 110 Pointers for Listening to Analyst Calls 112 Understanding the analysts'' language 113 Developing your listening skills 114 Locating Company Calls 117 Identifying Trends in the Stock-Analyst Community 117 Part 3: Reading the Charts: Technical Analysis 119 Chapter 8: Seeing Is Believing: An Introduction to Technical Analysis 121 Understanding the Methodology 122 Finding everything in the price 123 Seeing that price movements are not always random 124 Balancing supply and demand 125 Understanding where you''ve been 125 Understanding where you''re headed 127 Answering the Detractors 128 Walking randomly 129 Trading signals known to all 129 Executing Your Trading Plan 130 Using StockCharts.com 131 Chapter 9: Reading Bar Charts Is Easy (Really) 135 Creating a Price Chart 136 Looking at a single price bar 137 Measuring volume 138 Coloring charts 140 Identifying Simple Single-Day Patterns 140 Single-bar patterns 140 Reversal patterns 142 Recognizing Trends and Trading Ranges 143 Discerning a trading range 144 Spotting a trend 145 Paying attention to time frame 146 Searching for Transitions 147 Support and resistance: The keys to trend transitions 147 Finding a breakout 149 Sipping from a cup and handle 151 Deciding what to do with a double bottom 152 An alternative double-bottom strategy 153 Looking at other patterns 154 Chapter 10: Following Trends to Boost Your Probability of Success 155 Identifying Trends 156 Supporting and Resisting Trends 157 Drawing trend lines to show support 158 Using channels 159 Trending and channeling strategies 160 Seeing Gaps 161 Common gap 162 Breakout or breakaway gap 162 Continuation gap 162 Exhaustion gap 163 Island gap 164 Waving Flags and Pennants 164 Withstanding Retracements 165 Three-step and five-step retracements 166 Subsequent trading ranges 167 Dealing with Failed Signals 168 Trapping bulls and bears 168 Filling the gaps 169 Deciding whether to reverse directions 169 Chapter 11: Calculating Indicators and Oscillators 171 The Ins and Outs of Moving Averages 173 Simple moving average 173 Exponential moving average 175 Comparing SMAs and EMAs 178 Interpreting and using moving averages 179 Support and resistance factors 181 Deciding the moving average time frame 182 Understanding Buy and Sell Pressure through Stochastic Oscillators 183 Calculating stochastic oscillators 183 Interpreting stochastic oscillators 184 Tracking Momentum with the MACD 185 Calculating the MACD 186 Using the MACD 187 Revealing Relative Strength 190 Calculating relative strength 190 Putting relative strength to work 191 Part 4: Developing Strategies for When to Buy and Sell Stocks 193 Chapter 12: Money Management Techniques: Building a More Robust Portfolio 195 Achieving Your Trading Goals with Smart Money Management 196 Managing Your Portfolio 197 Thinking of trading as a business 197 Recognizing the trader''s dilemma 198 Finding a better plan 199 Protecting Your Principal 201 Recovering from a large loss: It ain''t easy 202 Setting a target price for handling losses 203 Strategies for managing profitable trades 205 Understanding Your Risks 209 Market risks 209 Investment risks 210 Trading risks 210 Chapter 13: Combining Fundamental and Technical Analyses for Optimum Strategy 213 Seeing the Big Picture 214 Knowing when the Fed is your friend 215 Keeping an eye on industrial production 215 Watching sector rotation 216 Finding the dominant trend 220 Selecting Your Trading Stock 225 Trading Strategies 226 Trading the bullish transition 226 Trading in a bull market 227 Trading the bullish pullback 227 Trading the bearish transition 228 Trading in a bear market 228 Trading the bearish pullback 229 A hypothetical trading example 229 Chapter 14: Minimizing Trading Risks Using Exchange-Traded Funds 231 What Is an ETF? 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