<s> BusinessCulinaryArchitectureComputerGeneral InterestChildrenLife SciencesBiographyAccountingFinanceMathematicsHistorySelf-ImprovementHealthEngineeringGraphic DesignA p p l i e d S c i e n c e s PsychologyInterior DesignBiologyChemistry
WILEYeBOOKWILEYJOSSEY-BASSPFEIFFERJ.K.LASSERCAPSTONEWILEY-LISSWILEY-VCHWILEY-INTERSCIENCE
THE STOCK MARKET COURSE
WILEY TRADING ADVANTAGEBeyond Candlesticks / Steve NisonBeyond Technical Analysis / Tushar ChandeCampaign Trading / John SweeneyContrary Opinion / R. Earl HadadyCybernetic Trading Strategies / Murray A. Ruggiero Jr.Day Trade Part-Time / John Cook and Jeanette SzwecEncyclopedia of Chart Patterns / Thomas BulkowskiExpert Trading Systems / John R. WolbergFundamental Analysis / Jack SchwagerGaming the Market / Ronald B. SheltonGenetic Algorithms and Investment Strategies / Richard J. Bauer Jr.Intermarket Technical Analysis / John J. MurphyLong-Term Secrets to Short-Term Trading / Larry WilliamsMacro Trading and Investment Strategies / Gabriel BursteinManaged Trading / Jack SchwagerMcMillan on Options / Lawrence G. McMillanNeural Network Time Series Forecasting of Financial Markets / E. Michael AzoffNew Market Timing Techniques / Thomas R. DeMarkNew Trading Dimensions / Bill WilliamsNonlinear Pricing / Christopher T. MayOption Market Making / Alan J. BairdOption Strategies, Second Edition / Courtney SmithPattern, Price & Time / James A. HyerczykPoint and Figure Charting / Thomas J. DorseyProfits from Natural Resources / Roland A. JansenSchwager on Futures / Jack SchwagerSeasonality / Jake BernsteinStock Index Futures & Options / Susan Abbott GidelStudy Guide for Trading for a Living / Dr. Alexander ElderStudy Guide to Accompany Fundamental Analysis / Jack SchwagerStudy Guide to Accompany Technical Analysis / Jack SchwagerTechnical Analysis / Jack SchwagerTechnical Analysis of the Options Markets / Richard HextonTechnical Market Indicators / Richard J. Bauer Jr. and Julie R. Dahlquist
The Day Trader’s Manual / William F. EngThe Dynamic Option Selection System / Howard L. SimonsThe Hedge Fund Edge / Mark BoucherThe Intuitive Trader / Robert KoppelThe Mathematics of Money Management / Ralph VinceThe New Market Wizards / Jack SchwagerThe New Money Management / Ralph VinceThe New Options Market, Fourth Edition / Max AnsbacherThe New Science of Technical Analysis / Thomas R. DeMarkThe New Technical Trader / Tushar Chande and Stanley S. KrollThe Option Advisor / Bernie G. SchaefferThe Options Course / George A. FontanillsThe Options Course Workbook / George A. FontanillsThe Stock Market Course / George A. Fontanills and Tom GentileThe Stock Market Course Workbook / George A. Fontanills and Tom GentileThe Trader’s Tax Solution / Ted TesserThe Trader’s Tax Survival Guide, Revised Edition / Ted TesserThe Trading Game / Ryan JonesThe Ultimate Trading Guide / John Hill, George Pruitt, and Lundy HillThe Visual Investor / John J. MurphyTrade Options Online / George A. FontanillsTrader Vic II / Victor SperandeoTrading Applications of Japanese Candlestick Charting / Gary Wagner andBrad MathenyTrading Chaos / Bill WilliamsTrading for a Living / Dr. Alexander ElderTrading on Expectations / Brendan MoynihanTrading Systems & Methods, Third Edition / Perry KaufmanTrading the Plan / Robert DeelTrading to Win / Ari Kiev, M.D.Trading with Crowd Psychology / Carl GyllenramTrading without Fear / Richard W. Arms Jr.
THE STOCK MARKET COURSE
George A. Fontanills and Tom Gentile
JOHN WILEY & SONS, INC.New York • Chichester • Weinheim • Brisbane • Singapore • Toronto
This book is printed on acid-free paper. ∞Copyright © 2001 by George A. Fontanills, Tom Gentile, and Richard M. Cawood.All rights reserved.Published by John Wiley & Sons, Inc.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, orotherwise, except as permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, or authorizationthrough payment of the appropriate per-copy fee to the Copyright Clearance Center, 222Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to thePublisher for permission should be addressed to the Permissions Department, John Wiley &Sons, Inc.,605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail:PERMREQ@WILEY.COM.This publication is designed to provide accurate and authoritative information in regard tothe subject matter covered. It is sold with the understanding that the publisher is not engagedin rendering professional services. If professional advice or other expert assistance isrequired, the services of a competent professional person should be sought.Designations used by companies to distinguish their products are often claimed astrademarks. In all instances where the author is aware of a claim, the product names appearin Initial Capital letters. Readers, however, should contact the appropriate companies formore complete information regarding trademarks and registration.Library of Congress Cataloging-in-Publication Data:Fontanills, George.The stock market course / George A. Fontanills and Tom Gentile.—1st ed.p. cm.—(Wiley trading advantage)Includes bibliographical references and index.ISBN 0-471-39315-0 (cloth : acid-free paper)1. Stocks—United States. I. Gentile, Tom, 1965– II. Title. III. Series.HG4910.F598 2001332.63'22—dc2100-053368Printed in the United States of America.10 9 8 7 6 5 4 3 2 1
I would like to dedicate this book tothe Optionetics.com staff, writers, and traders.Their innovative ideas and commitment to excellence,hard work, and constant good humor arethe reasons Optionetics.com is enjoyingsuch phenomenal success!Thank you, one and all.
DisclaimerHypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actualtrading. Also, since the trades have not actually been executed, the resultsmay have under- or overcompensated for the impact, if any, of certain factors,such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits orlosses similar to those shown. There is a risk of loss in all forms of trading.Important NoticeTrading stocks and options has large potential rewards, but also large potential risks. You must be aware of the risks and willing to accept them in orderto invest in the markets. Do not trade with money you cannot afford to lose.This is neither a solicitation nor an offer to buy or sell stocks or options. Thisbook is published for educational purposes only and should not be reliedupon. Consult a licensed professional about your individual trading. Prior tobuying or selling an option, your brokerage firm should send you a copy ofCharacteristics and Risks of Standardized Options. Copies of this documentare also available from the Chicago Board Options Exchange, 400 South LaSalle Street, Chicago, IL 60605, or can be viewed at the CBOE’s web site(www.cboe.com), or at www.optionetics.com.
Acknowledgments
After my first two books on option trading were published, I was approached aboutwriting a comprehensive book on how to trade the stock market. At first theprospect of writing a book on a scope as wide as the stock market shook me to thecore. But being the kind of person who loves a challenge, I soon warmed up to theidea. It has been a long, sometimes arduous, journey.After years of experience teaching people how to trade options, I have learnedmany things about the process of learning. First and foremost, you can’t teach anyone anything unless they have the desire to learn. Second, everyone learns at his orher own speed. Third, you have to break the complexities of trading down into bitesize, understandable pieces that are interesting enough that people naturally continue the learning process because they get it. If it gets too complicated, people giveup. Learning involves a feeling of accomplishment with a few epiphanies thrown inhere and there to spice things up and keep the process engaging. I am hopeful thatthis book not only accomplishes these goals, but also helps people to understand thestock market and gives them enough tools to make money in it.As usual, I could not have written this book without the supreme effort of theOptionetics.com staff and the research team that helped put it all together. I wouldnow like to take the time to acknowledge each one of these brilliant people.At the top of the list, I want to thank my coauthor for this book, Tom Gentile. AsChief Options Strategist at Optionetics.com and coinstructor at Optionetics Seminars, Tom is one of the most brilliant traders I have ever had the pleasure to know.Although this book is written from a first person perspective, please note that it isthe work of two authors. To his credit, Tom put in a phenomenal amount of time andenergy researching every aspect of this book while sharing his extensive experienceand insightful trading knowledge. His consistency and attention to detail make himthe best writing partner I can imagine. Thank you, Tom Gentile, for your supremeeffort in the completion of this book.My deepest thanks go to Richard Cawood, the CEO of Optionetics.com, for hisunbiased support and can-do, positive thinking. He is the backbone of this organization, and without him I would not be able to do all the things I love to do as well asix
x
ACKNOWLEDGMENTS
I get to do them. I would also like to acknowledge Amy Morris, our Director of Administration, whose tireless efforts keep the day-to-day running of Optionetics.coma smooth, well-organized process. In addition, I would like to thank Tony Clemendor, our Chief Operating Officer, for his innovative leadership, excellent ideas, andtireless dedication to the expansion of Optionetics.com.There are also a host of excellent writers on my research team that deserve a biground of applause. Without them, I would not have been able to write such a comprehensive book or finish it on time. Specifically, I would like to thank Mike Keller,Frederic Ruffy, and Phillip Wiegand for their insightful devotion to this project.How they magically found time to help me complete my thoughts I’ll never know.My thanks also go to Ed Hecht, Scott Kaye, Chris McLean, and Roy Lindsay fortheir support. I would like to acknowledge and thank Andrew Neyens and ShelleySouza for their editorial genius, timely commentary, and market expertise. Specialthanks also go to Mary Jo Thayer for her in-depth research, last-minute edits, andoverall assistance in the completion of this book.Last, but not least, let me express my deep appreciation to Kym Trippsmith, theEditor-in-Chief of Optionetics.com and the senior editor for this project. She hasbeen absolutely indispensable in the development and coordination of this book.Kym’s unconventional approach to life and wild sense of humor serve as an inspiration to all of us.Good luck and great trading!—GEORGE A. FONTANILLS
About the Authors
George A. Fontanills Having struggled to overcome a life-threatening illness as ayoung man, George Fontanills is a true believer in the idea that pursuing yourdreams is something that should never be put off until tomorrow. Like many people,George followed the typical educational and work-related path: After high schoolhe went to college, and from college to an accounting job at the prestigious firm ofDeloitte, Haskins Sells. Upon receiving his CPA license, George started work withAndersen Consulting. Not quite satisfied with where his life was headed, he left thisjob to attend Harvard Business School’s MBA program.After receiving his MBA, George decided to get off the treadmill of unsatisfyingjobs. In the face of several high-paying job opportunities, George decided that heneeded to start his own business. His first business failed. Undaunted, he started asecond business that never left the starting gate. A survivor, he kept going. Runninglow on money, George became a real estate investor buying property with nomoney down. Finding a business he enjoyed, he quickly began to build a successfultrack record increasing his assets. Just as he began to feel that he had found his lifelong career, the bottom fell out of the real estate market—strike three.As George pondered his next move, he received a brochure on making money inthe markets. After ordering the book, he began trading—and losing money. Ratherthan concentrating on his own losses, he began studying successful traders to seewhat they were doing differently. Using the analysis skills he developed at Harvard,George conducted a comprehensive investigation to determine what differentiatedthe winners from the losers. Risking the money he made in real estate, Georgetested his conclusions and eventually learned to use managed-risk strategies. Thisinnovative approach uses options to mathematically control risk every time a tradeis placed, thereby consistently producing income without the stress of unbridledlosses. He called this trading style Optionetics. As his net worth soared, Georgegained a reputation as one of the world’s most respected traders. As an expert innondirectional, managed-risk options trading, George Fontanills became a regularspeaker at trading conferences and investment summits.Today, Mr. Fontanills is the President of Global Investment Research Corp. andremains an active equity options and stock investor. He currently teaches this stratexi
xii
ABOUT THE AUTHORS
gic approach through his study program, Optionetics: The Science of High Profitand Low Stress Trading. Specializing in delta neutral trading using stocks, optionson indexes, and options on stocks, George Fontanills has instructed thousands oftraders internationally.As President of Pinnacle Investments of America, Inc., Mr. Fontanills is a registered investment adviser and hedge fund manager, as well as a consultant to a number of offshore trading organizations, professional trading firms, and large financialinstitutions. His unique approach to trading and phenomenal success has made hima sought-after speaker at a variety of conferences. His reputation as a pioneer inteaching delta neutral trading has led to numerous guest appearances on televisionand radio shows across the country. He has been most recently written about in theWall Street Journal, Barron’s, Research magazine, CBS MarketWatch, andTheStreet.com. He is a featured trading expert on CNBC, Bloomberg, and CNNfn,as well as many radio stations across the country. In addition, Mr. Fontanills’ twobest-selling hardback releases—The Options Course and Trade Options Online,published by John Wiley & Sons, Inc.—have added to his critical acclaim as one ofthe best trading instructors in the country.Tom Gentile Mr. Gentile was born of steelworker descent in Pittsburgh, Pennsylvania, in 1965. During his childhood, he moved around the country as his familyworked on various state government projects. He dubbed himself the “professionalnew kid” as he wound up in virtually a different school each year. As college approached, Mr. Gentile excelled as a distance runner, and during 1982 and 1983 wasrated one of the top distance runners in the state of Georgia. In 1984, Tom went towork for Home Depot, and by 1987 had become one of the youngest managers in thecompany. By 1990, Gentile progressed to become a regional coordinator in HomeDepot’s information services. His responsibilities included financial training of executive, regional, and district managers over the entire northeastern United States.Gentile began his trading career in 1986 and made the jump to full-time tradingin 1994, landing a job at the American Stock Exchange. During his tenure on thefloor, he met George Fontanills and began teaching the Optionetics Seminars, oneof the most successful options seminars in the markets today. Gentile also played akey role in the development of the synthetic straddle, a strategy developed as an offthe-floor trading approach to rebalance a position.Currently, Gentile serves as the Chief Options Strategist for the Global Investment Research Corp. and Optionetics.com. He is a contributing writer in numerouspublications, including Fortune magazine, Barron’s, and the Wall Street Journal, aswell as many other magazines and publications. Online appearances have been numerous, with regular spots and articles at RadioWallStreet.com, TheStreet.com,Barrons.com, and a host of others. Gentile is currently hard at work on a new bookentitled The Volatility Course, to be published by John Wiley & Sons. As an up-andcoming market wizard, Gentile’s passion for trading and down-to-earth style is a refreshing change. “In trading, the education business is just like any other business,”says Gentile. “You either make dust, or you eat it.”
Contents
Foreword
xv
1
Welcome to the Stock Market
1
2
Solving the Broker Dilemma
36
3
The World of Stocks
60
4
Critical Trading Approaches
87
5
The Versatility of Options
117
6
Broad Market Analysis
158
7
Exploring Fundamental Analysis
204
8
Analyzing Company Reports
221
9
Technical Analysis Unveiled
248
10 Sentiment Analysis Essentials
290
11 Studying the Masters
322
12 Taking Advantage of Market Behavior
339
13 The Path to Trading Success
381
xiii
xiv
CONTENTS
Appendixes
393
A. Financial Profile TemplatesB. Stock Analysis TemplateC. Market Time LineD. Basic Strategy Reviews and Risk GraphsE. Option Expiration Month CodesF. Strike Price CodesG. Variable Option DeltasH. Intermarket RelationshipsI. Lists and TablesJ. Types of OrdersK. Exchanges and SECL. Media Sources and Web Sites GuideM. Online Brokerage DirectoryN. Formulas
394396397398403404405406407415416418428430
Index
431
Foreword
Audentis fortuna juvat.“Fortune favors the bold.”—Virgil, Aeneid, XI remember the first time I got a taste of the markets. I was facing a few personalproblems in my life, when I received something in the mail about trading. Withoutmuch thought, I decided to take a chance on a home study course on trading themarkets using some simple technical analysis techniques. When I received thismanual, I completely dove into it and let it consume me for a few weeks while Itrained 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 bea millionaire in no time.After finishing the course, I tried paper trading a few times. But the whole time Ijust kept thinking, “This is just too easy. I can’t believe I didn’t think of doing thisbefore.” 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 havingthe specialized knowledge about what it was that I was trading, and not having anentry 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 satin a hammock on some remote island, while gobs of money dropped each day intomy bank account.A lot has changed since the 1980s when yuppies, power lunches, and full-servicebrokers 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 totriple 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
xv
xvi
FOREWORD
cheap and getting cheaper every day—as low as a penny a share when placingthrough a direct access broker. When buying in bulk (5,000 shares), that numbercan 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 lagtime 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 wonderwhether your limit got filled. But drawbacks do exist. The biggest potential problemthat comes with all this technology is that the major trading decisions have becomethe direct responsibility of the individual trader. Without a professional by your sideto 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 thegroundwork to help you understand that trading the markets is not like any othercorporate career. Specialized knowledge is the best thing you can receive beforetaking on any venture. This is where a good education in the markets will save youthousands of dollars in mistakes. It amazes me how many people will try to save afew dollars trying to figure this market out on their own, and in the process spendthousands of dollars in losses to learn the markets. Bottom line: You will pay tolearn this business one way or another. The biggest problem with learning it thehard 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 oftrading stocks that we could fit into one volume. Placing a trade is the easiest part. Ittakes a mere nanosecond to complete. It’s what you do before and after the trade isplaced 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 accountsto 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 infinitenumber of tiny details that require explanation. To be successful, you need to amassenough weapons to effectively do battle in its highly competitive arenas. Knowingthe language of the market is only part of it. In addition, there are a multitude ofplayers, trading strategies, analysis techniques, ordering protocols, and regulationsthat make or break you as an investor.In truth, the stock market may hold the key to making your dreams come true orallowing 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 hasshown, there is opportunity in every crisis. As an investor, success lies in turningseemingly 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 prof-
FOREWORD
xvii
itable investor is an uphill battle. Just figuring out how to get started may seem likean overwhelming challenge. Odds are that you’ll lose money before you make anyat all. There are neither any get-rich-quick strategies nor foolproof tricks of thetrade. Learning to master the art of investing requires knowing the ground rules, being able to filter out unnecessary information, gaining practical experience beforeyou 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 profitmaking instead. There’s something irresistible about getting more money back froman investment than you originally paid for it. To successfully compete with thousands of market analysts, institutional money managers, professional brokers, andInternet-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 isworth the risk.Unfortunately, many novice traders depend on tips from brokers and intuitivehunches. They end up placing impractical trades that often result in disappointinglosses. To be successful, you have to stay in the game long enough to make moneyat 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 and3,000 stock options traded at the major stock exchanges, choosing a winner is noteasy. One strategy that has worked well for me has been identifying growth stocksand trying to buy them early in their growth cycle. Basically, for a company togrow, 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 companygrows 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 anincrease in the value of the company’s stock. For me, spotting a company in theearly stages of the growth cycle has proved to be an integral part of my investmentsuccess. 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 alwayshave investment ideas, it’s difficult to make specific suggestions because everyone’ssituation is different. In other words, a trade that seems ideal for me may well beunsuitable for someone with a totally different financial condition, time availability,and risk tolerance. It would be like a doctor prescribing medicine without doing anexamination first. So, the first goal of this book is to help you evaluate your currentfinancial 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.
xviii
FOREWORD
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 ofmaintaining one’s purchasing power and standard of living. It is an exciting time tobe 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 thatyou can focus on what’s really important. The advent of the Internet has opened upa Pandora’s box of financial information. But how much of this information is pertinent to the finding of promising investment opportunities? There are a multitudeof analysis techniques that can be used to gauge market performance. The trick isto use the techniques that help you find the right kind of stock to fit your financialprofile.The initial chapters of the book provide an introduction to various investment instruments including cash equivalents and bonds as well as stocks, mutual funds, andindexes. 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 helpyou 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 asto the specifics of stock fundamentals. Screening real-market moving fundamentals will save you thousands of dollars in mistakes. Just knowing what a P/E ratiois doesn’t cut it anymore. In this new era of fundamental analysis, investors haveto look beyond old-century thinking to adapt to the new-age style of fundamentalthinking. Understanding the fundamentals as presented here will clarify for youwhat 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 youto develop a more precise entry and exit system. From the beginnings of movingaverages 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 stockmarket. No analysis section can be truly complete these days without a section onthe 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 allmanner of important lists and informational charts. A glossary can be found onlineat www.optionetics.com.Investing is such a unique journey for each one of us. George and I have doneour 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 strongstock 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 toSuccess ” at the end of each chapter to enable readers to have a step-by-step guideto using the information in each chapter. The hardest part of learning to trade is
FOREWORD
xix
making the transition from theory to real-world trading. The roadmaps are designedto give you a quick rundown of what you need to know and how to get going. Thereis also an accompanying book, The Stock Market Course Workbook, available forthose 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 andtraders 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 thanjust a hunch. Trading is a vast realm of uncertainties. I hope this book provides ananchor 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 ofwhat you’re up against and how you can use the tools at hand to enjoy a successfulcareer in the stock market.TOM GENTILE
1Welcome to the Stock Market
I’m in love with my job. Every day I wake up raring to go. I turn on my computerand in seconds, I’m ready to take on the world—the new David in a land full of institutional Goliaths. Most days I’m up before the markets open, strategizing my nextmove and looking for winning trades. The everyday challenges presented by marketuncertainty make trading the best job I could possibly imagine. There’s none of this“same-old-same-old, day-in-day-out” stuff for me! Each day I wage war on a virtualbattlefield and I thrive on the excitement. Fortunately, I win more often than I lose.Make no mistake: Trading stocks is not for the weak of heart. Every day, the decisions you make potentially affect everything from where you can afford to sendyour kids to college to where you’ll spend your golden years. It’s been my experience that to become a proficient trader, you need to be dedicated to learning, andpassionate about winning. After all, you’re