Step #2 - Starting Your Education
The Main Event
From my personal experience in learning about the stock market, there are three major understandings one must have to establish a strong base and set forth on their own to expand their knowledge. For a strong base, I feel you must know:
- The basics behind the stock market (step 1)
- How to Look at and understand the basics of a chart (technical analysis)
- How to look at and understand the basics of company fundamentals (fundamental analysis)
Technical analysis - Charts, terms, and key information!!
To look at a chart or look at any stock on a website, you will have to understand the following terms (in no particular order):
Stock Price, Shares, Ticker, Volume, Last Trade, When the market opens and closes, up day, down day, 50 day moving average, 200 day moving average, accumulation day, distribution day, industry group, average daily volume, after hours, pre morning hours, dividends, index, amongst others.
It is important to not feel overwhelmed by these terms. If you need help understanding one of them, just ask me online or email me and I would be glad to help explain it further. And though they may be confusing at first, once you start tying them together, the basics behind them will fall into perspective for you. Below are some of the terms explained:
Stock Price - The price the stock is trading at. Stock prices can range anywhere from pennies a share to $10,000+ a share (Berkshire Hathaway anyone?).
Shares - Every stock has a set number of shares; all stocks are different. Typically this number resides in the 10s to 100s of millions to one billion+.
Ticker - This is the term that describes how to find any given stock. Every stock has its own ticker. For example, Google.com’s is GOOG, Disney’s is DIS, Ford’s is F, Sirius Satellite Radio’s is SIRI. Go up to someone and ask, “hey __, do you know what Google’s ticker is?” and if they know stock lingo, they will respond with, “Well, GOOG of course!”
Volume - Volume is how many shares of stock (how many pieces of the company) are traded per day. So, Company A has 500 million shares. Well, if on Monday it’s volume is 3,567,814, that means there were 3,567,814 shares of stock (pieces of the company) exchanged. If you own 1,000 shares, and then you go and sell them, you just added 1,000 to the overall total volume for that day.
Average Daily Volume - The average amount of shares that a stock trades per day (averaged over the past 50 trading days).
Market Open and Close - The Stock Market opens at 9:30 AM Eastern time each day, and closes at 4:00 PM Eastern time each afternoon. It is never open on Saturday or Sunday.
After hours and Pre Hours - The Stock Market also has morning hours from 8:00 AM to 9:30 AM (when the market opens), and after hours from 4:00 PM (when the market closes) till 6:30 PM.
“Up day” and “Down day” - A “Up day” is considered to be when the stock price closes (at 4PM) higher than where it opened that day (at 9:30 AM). A “Down day” is just the opposite.
Accumulation Day - This is a day where a stock trades more volume than the day before, and closes as an “up day”. An accumulation day is good because investors will say that there are more buyers accumulating shares than distributing them.
Distribution Day - This is a day where a stock trades more volume than the day before, and closes as a “down day”. A Distribution day is bad because investors will say that there are more sellers distributing shares than accumulating them ; ) .
Industry Group - Every company’s stock falls into a certain industry group. There are 197 in total, and they are separated based on just that, the industry. If you are looking for a gem mining company, look under the “Mining-Gems” industry group. What about Dell and Gateway? Well they are computer manufacturers, so you would find them in the “Computer-Manufacturers” industry group.
Market Index - Everyone has heard of the NASDAQ Composite, the S & P 500, and the Dow Jones Industrial. These are all market indexes. A market index comprises certain specific stocks to give all investors an idea of how the market as a whole is doing.
Fundamental Analysis
Most people think the Earnings Per Share is the most important fundamental factor of a stock, and a lot of people make trades based off of this alone. There are actually quite a few fundamentals that can really make a difference. Fundamental analysis really evolves from tinkering around by yourself, seeing how stocks with different ratings end up playing out, or by following a strategy that has already been set up. CANSLIM is probably the most popular of all the trading philosophies out there, and it ties in both fundamentals and technical analysis.
(terms coming soon)
More Cookies Please
Once you have read through the terms a few times, and feel you have a decent grasp on them, then it is important to experience how they actually apply to actual trading. This is probably one of the most exciting parts about the whole experience, which to buy and sell a stock for the first time. Don’t think it is going to be in real life though, because a stock simulator is the next place in line, not your wallet.
Discuss this post in the StockTradingToGo Forum.
Subscribe To StockTradingToGo.com
Comments on "Step #2 - Starting Your Education" are closed.