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spine .76”InvestingNow updated — your guide totrading success regardless of themarket! Build your trading toolbox — know the markets and exchanges,find a broker, set up your brokerage account, and determineyour computer/Internet needs Explore position trading — discover the benefit of executingtrades in and out of positions and holding positions for variouslengths of time, depending on trends Find value in fundamental analysis — observe market behavior,understand economic indicators, find critical information infinancial statements, and make the most of analysts Take on technical analysis — build and read charts, identifytrends, recognize bull and bear patterns, and differentiatebetween stocks that are range bound and ones that are trending Develop strategies for buying and selling — know your risks,gather key info through analysis to build your optimum tradingstrategy, and develop your own powerful trading systemOpen the book and find:gnidarT The ins and outs of trading stocks Fresh ways to analyze trends andindicators Updated stock charts and Web sites Position trading tips andtechniques Step-by-step instructions forbuilding and reading charts Key money managementtechniques Warnings about frauds and scams Top ten trading survivaltechniques Huge trading mistakes to avoid atall costsLearn to:Go to dummies.com for more! Trade stocks in any type of market Analyze trends and indicators Jump into the deep end — from swing and day trading toderivatives and foreign currency, get the basics of these riskierforms of trading Minimize risk and maximize return Conduct technical analysis 24.99 US / 29.99 CN / 16.99 UKMichael Griffis, MBA, is an active stock broker. He writes extensivelyabout investing and marketing, benefiting clients in the banking, andbrokerage industries. Lita Epstein, MBA, has written more than 25 booksto help readers understand the complex worlds of money and finance,including Bookkeeping For Dummies and Reading Financial Reports ForDummies. 2nd EditionTradingWant to make smarter trading decisions? This strategypacked, no-nonsense guide presents a proven system foranalyzing stocks, trends, and indicators and setting a buyand-sell range beforehand to decrease your risk in both upand down markets. You’ll discover the benefits of positiontrading, conduct technical analysis, and research your entryand exit points before you even purchase your stock.g Easier!Making EverythinISBN 978-0-470-43840-4Michael Griffis, MBAStock traderGriffisEpsteinLita Epstein, MBAFinancial writer2nd Edition

TradingFORDUMmIES‰2NDEDITIONby Michael Griffis and Lita Epstein

Trading For Dummies , 2nd EditionPublished byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.comCopyright 2009 by Wiley Publishing, Inc., Indianapolis, IndianaPublished by Wiley Publishing, Inc., Indianapolis, IndianaPublished simultaneously in CanadaNo part of this publication may be reproduced, stored in a retrieval system or transmitted in any form orby any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior writtenpermission of the Publisher, or authorization through payment of the appropriate per-copy fee to theCopyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600.Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley& Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for theRest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, Making EverythingEasier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission.All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associatedwith any product or vendor mentioned in this book.LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NOREPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OFTHE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BECREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIESCONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THEUNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OROTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OFA COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THEAUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCEOF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSESTHE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS ITMAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THISWORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN ANDWHEN IT IS READ.For general information on our other products and services, please contact our Customer CareDepartment within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002.For technical support, please visit www.wiley.com/techsupport.Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books.Library of Congress Control Number: 2009925743ISBN: 978-0-470-43840-4Manufactured in the United States of America10 9 8 7 6 5 4 3 2 1

About the AuthorsMichael Griffis became an active trader in the mid 1980s. He first tradedcommodities and precious-metals after taking a commodities trading class aspart of his MBA program at Rollins College. He turned his interest in tradinginto a profession and became a stock broker in 1992, where he helped business and individuals manage investments in stocks, bonds, mutual funds,retirement plans, 401(k) employee-savings plans, and asset management programs. Today, he mostly trades for his own account.In addition, Michael is an author and business owner and has written aboutstock trading for online audiences. Outside of the business and investmentworld, he is active in his community and volunteers his time and talents as afundraiser for civic and nonprofit organizations.Lita Epstein, who earned her MBA from Emory University’s GoizuetaBusiness School, enjoys helping people develop good financial, investing, andtax planning skills. She designs and teaches online courses on topics such asaccounting, reading financial reports, investing for retirement, getting readyfor tax time, and finance and investing for women. She has written more than20 books, including Bookkeeping for Dummies and Reading Financial ReportsFor Dummies, both published by Wiley.Lita was the content director for a financial services Web site, MostChoice.com and managed the Investing for Women Web site. As a Congressionalpress secretary, Lita gained first-hand knowledge about how to work withinand around the federal bureaucracy, which gives her great insight into howgovernment programs work. In the past Lita has been a daily newspaperreporter, magazine editor, and fundraiser for The Carter Presidential Center.For fun, Lita enjoys scuba diving and is an underwater photographer. Shehikes, canoes, and surfs the Web for hidden treasures.AcknowledgmentsWe would like to thank all the people who have been instrumental in makingthis new edition a reality. In particular, we’d like to thank Jessica Faust atBookEnds for getting us connected with Wiley. We’d also like to thank allof the wonderful For Dummies folks at Wiley, especially Michael Lewis andCorbin Collins for shepherding this project to completion and for advice andsuggestions, and Russell Rhoads for keeping us accurate. Also, we appreciatethe extraordinary efforts of Chip Anderson, owner of StockCharts.com, forhis help providing the example charts used throughout this book.

Publisher’s AcknowledgmentsWe’re proud of this book; please send us your comments through our Dummies online registration form located at http://dummies.custhelp.com. For other comments, please contact ourCustomer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax317-572-4002.Some of the people who helped bring this book to market include the following:Acquisitions, Editorial, and MediaDevelopmentProject Editor: Corbin Collins(Previous Edition: Tim Gallan)Acquisitions Editor: Michael LewisComposition ServicesProject Coordinator: Lynsey StanfordLayout and Graphics: Samantha W. Allen,Christin SwinfordCopy Editor: Corbin CollinsProofreaders: Lauren L. Bowman,Jessica KramerAssistant Editor: Erin Calligan MooneyIndexer: BIM Indexing & Proofreading ServicesEditorial Program Coordinator: Joe NiesenTechnical Editor: Russell RhoadsEditorial Supervisor & Reprint Manager:Carmen KrikorianSenior Editorial Manager: Jennifer EhrlichEditorial Assistant: David LuttonCover Photos: Image Source/CorbisCartoons: Rich Tennant(www.the5thwave.com)Publishing and Editorial for Consumer DummiesDiane Graves Steele, Vice President and Publisher, Consumer DummiesKristin Ferguson-Wagstaffe, Product Development Director, Consumer DummiesEnsley Eikenburg, Associate Publisher, TravelKelly Regan, Editorial Director, TravelPublishing for Technology DummiesAndy Cummings, Vice President and Publisher, Dummies Technology/General UserComposition ServicesDebbie Stailey, Director of Composition Services

Contents at a GlanceIntroduction . 1Part I: So You Want to Be a Trader:Gathering Your Tools . 7Chapter 1: The Ups and Downs of Trading Stocks . 9Chapter 2: Exploring the Markets and the Stock Exchanges . 21Chapter 3: Going for Broke(r): Discovering Your Brokerage Options . 33Chapter 4: Putting Your Computer to Work: Your Key Business Tool . 49Part II: Reading the Fundamentals:Fundamental Analysis . 65Chapter 5: Fundamentals 101: Observing Market Behavior . 67Chapter 6: Digging Into the Critical Parts of Fundamental Analysis . 83Chapter 7: Listening to Analyst Calls . 103Part III: Reading the Charts: Technical Analysis . 117Chapter 8: Reading the Tea Leaves: Does Technical Analysis Work?. 119Chapter 9: Reading Bar Charts Is Easy (Really) . 129Chapter 10: Following Trends for Fun and Profit. 149Chapter 11: Calculating Indicators and Oscillators . 165Part IV: Developing Strategies forWhen to Buy and Sell Stocks . 185Chapter 12: Money Management Techniques:When to Hold ’em, When to Fold ’em . 187Chapter 13: Using Fundamental and Technical Analysesfor Optimum Strategy . 203Chapter 14: Executing Your Trades. 221Chapter 15: Developing Your Own Powerful Trading System . 239

Part V: Risk-Taker’s Paradise . 257Chapter 16: The Basics of Swing Trading . 259Chapter 17: The Basics of Day Trading . 273Chapter 18: Doing It by Derivatives . 287Chapter 19: Going Foreign (Forex) . 303Chapter 20: Trading for Others: Obtaining Trading Licensesand Certifications . 319Part VI: The Part of Tens . 335Chapter 21: Ten (Or More) Huge Trading Mistakes . 337Chapter 22: Top Ten Trading Survival Techniques. 343Index . 349

Table of ContentsIntroduction . 1About This Book . 1Foolish Assumptions . 2How the Book Is Organized . 2Part I: So You Want to Be a Trader: Gathering Your Tools . 3Part II: Reading the Fundamentals: Fundamental Analysis . 3Part III: Reading the Charts: Technical Analysis . 3Part IV: Developing Strategies for When to Buy and Sell Stocks . 4Part V: Risk-Taker’s Paradise . 4Part VI: The Part of Tens .

Trading For Dummies . He turned his interest in trading into a profession and became a stock broker in 1992, where he helped busi-ness and individuals manage investments in stocks, bonds, mutual funds, retirement plans, 401(k) employee-savings plans, and asset management pro-grams. Today, he mostly trades for his own account. In addition, Michael is an author and business owner and has .