Learning to Trade 101

The son of a friend recently expressed interest in learning to trade. He had noticed the recent price appreciation of Krispy Kreme (KKD), and discerned that would be a wonderful way to make at least some extra money. His mother referred him to me, and I agreed to post a few entries on learning to trade.

I recommend several books I think most significant. To encourage one's learning I would first refer to Thomas Bulkowski's Getting Started in Chart Patterns. It is inexpensive ($13.57 at Amazon) and covers the ten most profitable patterns of stocks. The number-one pattern, the high, tight flag, I have mentioned in the FAS entries on this blog. The FAS entries serve as a real-life example of the various techniques useful generating extra-ordinary profits, including one example of the high, tight flag.

Of the significant books I recommend, two more of them are Thomas Bulkowski's. They are his Encyclopedia of Chart Patterns, and his Encyclopedia of Candlestick Charts. These are more pricey but well worth their price once one is certain of trading as a personally profitable pursuit.

The value of Bulkowski's books come from his statistical research in how these patterns perform in bull and bear markets. The latter two are dry reading, but essential reference for one who is profit oriented. The high, tight flag, for example, was first published by William O'Neil in How to Make Money in Stocks, but Bulkowski published the statistics on its performance. It averages a 69% appreciation, hits its target 90% of the time, and has a virtually 0% failure-to-reach-breakeven rate. That provides insight into my valuing Bulkowski's books.

The final "essential" book I would recommend is John Bollinger's Bollinger on Bollinger Bands. Bollinger was an analyst for Financial News Network when FNN was purchased by CNBC, but he did not care to move from Los Angeles to New Jersey when FNN and CNBC were merged--or perhaps more accurately, CNBC purchased and shutdown their competition. Instead, Bollinger stayed in LA and opened is own firm as well as writing his book.

In future entries on this topic, we'll cover support & resistance, trend lines, moving averages, volume studies, money management, and trading systems. These will have the label below of "Trading" so one can pull them up from among the many other topics of the blog. The trading methods presented are far from being the only available, but are simple, easily applied with limited time, and definitely do not require watching the market minute-by-minute during the day.