Allan Rosenberg - Taking Stock in Your Future: Trading a Single Stock

Copyright 2012, Allan Rosenberg

NOTICE AND DISCLAIMER: All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior writen consent of the publisher.

All persons involved in the preparation and sale of this publication disclaim any warranty as to accuracy or currency of the publication. This publication is provided on the understanding and basis that none of the author or other persons involved in the creation of this publication shall be responsible for the accuracy or currency of the contents, or for the results of any action taken on the basis of the information contained in this publication, or for any errors or omissions contained herein.

No one involved in this publication is attempting herein to render financial, accounting or other professional advice. If financial advice or other expert assistance is required, the services of a competent professional should be sought. The analysis contained herein should in no way be construed as being either official or unofficial policy of any governmental body.

Editing: Catherine Leek of Green Onion Publishing

Cover and Interior Design and Layout: Kim Monteforte of WeMakeBooks.ca

Table of Contents

Our Approach and Philosophy

Value Investing

Selecting Stocks Under Value Investing

Technical Analysis

Selecting Stocks Under Technical Analysis

Your Commitments

Money

Your Time

What Youll Need to Succeed

The Markets Cycles

Your Approach: Short-Term Trading

The Basics

Cyclical Companies by Category

Financial Goals

Profitability

Stability

Liquidity

Efficiency

Growth

Financial Analysis

Supply and Demand

The Cycle of a Stock

Stage One

Stage Two

Stage Three

Stage Four

Support and Resistance

Adding Emotion to the Cycle

Putting It Together

Six Ways Financial Markets Affect Companies

Anatomy of an Uptrend

Anatomy of a Downtrend

Going Public

Underwriting

Reading a Company

Questions and Answers

How Stock Markets Work

Market Types

Commodity Markets

Futures Contracts

The Exchanges

The NASDAQ

The American Stock Exchange LLC

The Securites Exchange Commission (SEC)

Securities and Exchange Commission Reports

The Indices

The Dow Jones Industrial Average

The NYSE Composite Index

Standard & Poors 500 Index

Lessons Learned from the Past

Lessons from the 1980s

Todays Considerations

Selecting an Online Broker

Products and Services

Interim Statements

Determining the Health of a Stock

Fundamental Analysis

Technical Analysis

The IDB

Charting Basics

Charting Essentials: Line Charts, Bar Charts and Candlestick Charts

Line Charts

Bar Charts

Candlestick Charts

Candlestick Charting Features

Basic Candlestick Patterns

Hammer and Hanging Man

Two-Candlestick Patterns

Three-Candlestick Patterns

Spinning Tops and High Wave Candlesticks

Questions and Answers

Reading the Charts

Your Traders Toolbox

Volume: A Mega-Important Indicator

Moving Averages

Oscillators

On-Balance Volume

The MACD

MACD-H Signals

Bollinger Bands

Head-and-Shoulders

The Key Points

The Graph

Reverse Head-and-Shoulders

The Key Points

The Graph

Cup-with-Handle

The Key Points

The Graph

Double Bottom

The Key Points

The Graph

Double Top

The Key Points

The Graph

Gaps: A Traders Black Hole

Exhaustion Gaps

Some Graphs

Case Study: Harrier Inc.

Buy Trigger List

Questions and Answers

Plan Your Trade and Trade Your Plan

Guidelines

Stop-Loss

Fibonacci Numbers

The Markets Daily Rhythms

Advance/Decline Line: Market Narrator in a Capsule

Economic Indicators

Inflation Facts

Bull/Bear Ratio

Other Indicators

A Word about Losses

Level II Trading: Is It for You?

Setting Up a Trading Log

Is This a Good Trade?

Buying More of One Stock

High-Risk Trade

Reducing Risk

Working a Real Trade

The Stats

The Journey

The Rest of the Story

The Big Picture

Assess the Trading Environment

Analyze the Broader Markets

Gold

Questions and Answers

Appendices

Key Terms

Formulas

The Balance Sheet

Various Types of Stocks

Preface

In my time as a trader/ speculator/investor I have come to read many books and publications about Wall Street and the stock market some useful but most not. It is interesting to note that more money has been made on Wall Street authoring books, writing newsletters, and giving seminars than on speculation itself. This may not seem obvious to the public today given the fact that the greatest bull market in history has just ended but in due time, I believe this fact will be made clear to most people.

It is my hope that Taking Stock in Your Future will help my read ers gain a better understanding of the stock market and trading in gen eral. I believe that those who truly take the time to study stock market history will greatly benefit from this text. There is really no magic formula to making money in the stock market. To truly succeed one must put in the time and effort, especially since trading or speculat ing in the stock market is, in my opinion, the most competitive profession there is today.

The principles I present here are not without their share of detractors. For example, many professional money managers regard the concepts presented in this book as basic or, worse yet, unworkable in todays institutional model a model where guaranteed and steady inflows into equities from global pension funds, sovereign wealth funds, company buybacks, and retail investors have moder ated the volatile cycles of yester-years. A prominent hedge fund manager (whose hedge fund operations have blown up twice in the last decade) even went as far as calling one of Benjamin Grahams value investing methods, that of buying a company for less than its net current value, ridiculous in todays environment. (More on Graham, a professor and investment theorist, later.)

In my opinion, there are two major reasons why Taking Stock in Your Future is as relevant as ever, if not more.

1. The teaching within still forms the foundation of all types of value investing practiced in the world today. To get a sense of how the concept of value investing has evolved over the last 60 years, it is imperative for investors to go back to the true source. Moreover, the ideas put forward are easily accessible to both the lay investor and the professional alike.
2. Like the vast majority of the general population, many professional investors are not immune to temporary lapses in investment discipline. Having a copy of Taking Stock in Your Future sitting on your desk or the nearest book shelf is a great antidote to such lapses especially in trying times such as we experienced in October 2008.

The primary purpose of this book is to supply, in a form suitable for laypeople, guidance in the adoption and execution of an investment policy. Comparatively little will be said here about investment principles and investors attitudes, rather attention will be paid chiefly to the technique of analyzing securities.