Investing For Beginners

When I first began investing back in 1995, I had no idea what I was doing. I thought that learning to read a stock chart was going to make me a rich investor. Knowing how to read a stock chart and being able to make money at trading are two completely different things.

Stock Market Investing For Beginners

Most investing for beginners books and websites will teach you how to use all the popular technical indicators like the MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More and RSIIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More. For years I thought that the more I learned about reading a stock chart, the better I would be at trading. I learned to read a chart really well but I had no idea about how to take that knowledge and make money with it trading.

I know that a lot of you have the same issue. You know what a moving average is. You know what the MACD is. You know what the volume is. You know what the stochastic is. But you are not able to use that knowledge to consistently make money trading for a living. You’ll try and buy a stock on a MACD break above the 0 line, and that may work a time or two. But over the long run you’ll start to pile up more and more losing trades. Pretty soon you realize that you need something more than the MACD.

You then go on a quest to find another technical indicator, adding more and more technical indicators to your tool box.

Investing For Dummies

Some publishers refer to good investing for beginners instruction as “investing for dummies”. I don’t think that’s really accurate because it takes mastery of a subject to be able to explain it to the average person without using “the king’s english”. For example, something that is classified as investing for beginners is that all money making chart patterns fall into one of three categories. I know basic stuff right? Classifying all charts into one of these three categories is HUGE because there’s rules for trading each of these categories.

Investing Advice For Beginners

Even if you are a seasoned investor with years of experience, reviewing investing for beginners material like the three categories all money making trades fall into can be extremely profitable. No matter how long you have been trading, we all need a little investing 101 to review the basics.

Investing 101

The three basic patterns that all winning trades fall into are: oversold, continuation, and breakout.

In most investing for beginners courses, the oversold pattern is talked about but an important point is left out. Take a look at the oversold chart below.

This chart is from a stock I swing traded successfully time and time again. The most important point of this chart is that an oversold stock must have a history of repeatedly bouncing off the oversold level. It is not a good enough reason to buy an oversold stock simply because it’s oversold. It needs to show a history of bouncing off the current support level over and over again.

Frequently Asked Questions about Investing for Beginners

What is a consolidation pattern?

A consolidation pattern is a continuation pattern. The consolidation pattern can have a slight slant to it but generally it’s a horizontal sideways price action on the chart.

The consolidation pattern is marked in yellow on the chart above.

The consolidation pattern marks a period when neither buyers or sellers are in control.

Often times the RSI will flat-line at around 50 during a lengthy continuation or consolidation pattern.

Triangles and Wedges are also types of continuation patterns.

ExacTrades published the educational video below called Stock Chart Patterns: How to Trade Consolidation Stock Patterns.

What is a continuation pattern?

A continuation pattern is a pause or counter-trend within a larger trend, that eventually continues after a breakout and the continuation pattern comes to an end.

Triangles are continuation patterns:

Wedges are continuation patterns:

Rectangles are continuation patterns:

Flags are continuation patterns:

Jim McQuarrie from StrategicDayTrading posted the video below called Continuation Patterns.

What is activist investing?

Activist investing is when a hedge fund or investment group buys a lot of shares in a company and then pushes for change at that company that will make the stock price go up.

Activist investors might push for a new Board or a share buyback. Shareholder activism can take any of several forms: proxy battles, publicity campaigns, shareholder resolutions, and litigation. Daniel Loeb and Carl Icahn are two of the more popular activist investors.

Amateur investors can take advantage of investor activism by following investors like Carl Icahn into a stock. Activist investors like Carl Icahn can be a powerful catalystA stock catalyst is an engine that will drive your stock either up or down. A catalyst could be news of a new contract, SEC filings, earnings and revenue beats, merger and acquisit... More that will push a stock higher.

The Rock Center for Corporate Governance at Stanford University published the video below called Activist Investing: Background, Impact.