A Beginner's Guide to the Stock Market

by Matthew R. Kratter

The NYSE is best known for its blue chip (high-quality) stocks like Coca-Cola and McDonald's. The Nasdaq is best know for its tech stocks like Netflix and Apple.

My favorite broker is Robinhood.com

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https://www.trader.university/buy-stocks-robinhood

This is because every stock has a bid price and an offer (or "ask") price. The bid is the price at which someone is willing to buy the stock. The offer is the price at which someone is willing to sell the stock. Memorize this phrase right now:

You can see the relative weightings here: https://www.slickcharts.com/sp500

Some smart people came up with the idea of the ETF ("exchange-traded fund"). An ETF trades just like a stock. You can buy or sell it all day long in your brokerage account. Each ETF represents a certain index. So the ETF for the S&P 500 trades under the ticker SPY. The ETF for the DJIA trades under the ticker DIA. And the ETF for the Nasdaq 100 trades under the ticker QQQ.

If you buy the QQQ and hold it for the long-term, you will be able to profit from the long-term growth of the tech industry.

Buying a stock index like the S&P 500 is a great way to get started investing.

There's an easy way to own a piece of every Dividend Aristocrat: just buy some shares of NOBL. It is the ProShares S&P 500 Dividend Aristocrats ETF. It trades just like a stock, and you can purchase it using any brokerage account.

http://www.berkshirehathaway.com/letters/letters.html

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If you study Warren Buffett for many years as I have, you will begin to notice that his stock picks follow a certain pattern. They are usually strong, well-known brands like Coca-Cola and Apple. He also likes to own financial companies like Bank of America, American Express, and Wells Fargo-- probably because these companies are highly leveraged and so make a lot of money during the good times. They also get bailed out by the government during the bad times.

https://www.barchart.com/stocks/highs-lows/highs?timeFrame=1y

52weeks

The next step is to look at a daily chart of each stock. I want to make sure that the stock is trading above its 50-day moving average; and that the 50-day moving average is above the 200-day moving average. That looks something like this:

Never buy a growth stock if the stock is trading below its 200-day moving average, or if the 50-day moving average is trading below the 200-day moving average.

If a growth stock is trading above its 50-day moving average, and the 50-day moving average is trading above the 200-day moving average, I am happy to be long.

Due to an anomaly called “Post-Earnings-Announcement Drift” (PEAD),

Growth stocks perform much better when the entire stock market is also in an uptrend.

If the SPY and QQQ are trading above their 50-day moving averages, and if their 50-day moving averages are above their 200-day moving averages, it is a good sign that the general stock market is in an uptrend.

Also, I like to look for growth stocks that have a market cap of $5 billion or less. It takes a lot less money to push a $5 billion stock higher than it does a $500 billion market cap stock.

I also like to look for growth stocks, where the float is less than 20% of the total number of shares outstanding. The “float” is simply the number of shares of a stock that are actually available for trading.

porcentaje de la empresa disponible paa el trade

You can use this link to look up the float for any stock: https://finance.yahoo.com/quote/LYFT/key-statistics

IPO

That’s why if a growth stock is hitting new 52-week or all-time highs and it also has a “Short % of Float” that is greater than 10%, I get very interested.

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Exit (with a profit or loss) when the stock closes below its 50-day moving average. Use this method to capture shorter moves. Exit (with a profit or loss) when the stock closes below its 200-day moving average. Use this method to capture longer moves.

Use a 10-day or 20-day exponential moving average (EMA) as a trailing stop. Exit your position if the stock has a daily close below this EMA.

You can also scale out of a profitable position. Sell 25% of your position every Monday for 4 weeks in a row, or something similar. That is a good way to lock in some profits, while still keeping some exposure to the stock in case it continues to move higher.

Likewise, if the S&P 500 has been going down for a few months and my indicators tell me that it is near a bottom, I will often buy a recent IPO with a small float. If the S&P 500 rallies 10% off its lows, a new IPO could go up more than 100%.

If you are trading an IPO, make sure that you are aware of when the lockup expires.

Would you be interested in an online course that explores how to trade IPOs in more detail? If so, please contact me at matt@trader.university, and let me know.

By now you've probably realized that this type of trade is called a "covered call." You are short a call, but you are "covered" against a big loss by simultaneously owning the stock. For every call that you want to sell, you'll need to buy 100 shares of the underlying stock to make this work.

As we mentioned before, covered calls work best when a stock is trapped in a trading range (i.e. trading sideways).

But the giant mutual fund’s or hedge fund's large order will cause the stock to continue to move.

Don’t buy stocks that are hitting 52-week lows. Don’t trade penny stocks. Don’t short stocks. Don’t trade on margin. Don’t trade other people’s ideas.

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Improving company fundamentals and good economic news will often show up in stock prices before they show up in the headlines, which is why it is so important to pay attention to price action.

September has historically been the weakest month for the stock market.

Average historical returns for June and August are also negative.

"Sell in May and go away." Stock market returns from November through April have historically been much higher than stock mark...

If you are looking for a good long-term investment, buy a company that has the highest sales in its industry.