Intro To Trading

Making money in the stock market can seem like Russian roulette if you don't know what you are looking at. Charting is a key part of making money. The funny thing is, many people disregard charts as an unreliable way to read the market. The professionals use charts, so I use charts.

I consider charts to be the X-Rays/CAT scans/MRI's/ECG's/etc... of the stock market. Charts tell you the psychological story of the stock market, you just have to know how to read them. Imagine going in to the doctor for chest pains and he doesn't even take an X-Ray/ECG/MRI. Now how sure are you that your what is going on inside your chest? I mean, it feels like there is a problem, but how can you be sure. Now, would you go back to that doctor for another medical problem? Probably not. The same goes for the stock market and charts. If the person managing your money (which should be you) doesn't use charts, fire them (or start using charts).

On to the basics:

Bid- The highest price someone is willing to pay for a stock/security.
Ask- The lowest price someone is willing to sell a stock/security for.
Volume- The number of securities that change hands in a set period of time (can be from 1 minute to years).
P/E- Ratio of the current stock price to the current earnings per share.
Market Capitalization- #of shares * current share price.
EPS- Earnings per share.
Outstanding shares O/S- How many shares there are, out on the open market.
Float- #of shares not restricted, that trade freely
Limit order- An order to buy/sell at a set price
Market order- An order to buy/sell at whatever the going market price is
Stop order- An order to sell a security if it drops below a certain price (or rises above if you are short).
Long- Buying a security looking for an increase in price
Short- Selling a security looking for a decrease in price

That's all that I'm going to get into on that, since that's the most common information you'll need to know, for more advanced stuff you can check out investopedia.

Basic chart terms:

Candle/Bar- A visual representation of the opening, high, low, and close prices for a security in a given time frame. (i.e. 1 minute, 5 minutes, 1 day, 1 week, etc...)
Moving Avg- A line representing the average price of a security over a select time period (i.e. 20d, 50d, 200d, etc...)
Trendline- A line drawn from one point on a chart to another, signifying the underlying trend of the security.
RSI- Relative Strength Index, a formula used to tell if a stock as moved in one direction to quickly. Signals overbought or oversold securities.
Golden Cross: When a short term moving avg crosses through a long term moving avg (i.e. 20d crossing the 50d)

Again, for more info on these terms or more advanced terminology visit investopedia.

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