Stock Trading

I have a NASDAQ Series 7 license. It's a license you need to be a stock broker. The official term for a stock broker is a Registered Representative. It's supposed to mean I know a lot about investments - stocks, bonds, mutual funds, and options. I do, yet nothing I learned in getting that license was of use in making money in the stock market. I doubt if Warren Buffet has a Series 7 license, yet he is arguably the most successful stock investor alive.

I have learned a few things about stock trading. I even wrote a book about it. (Not available in stores.) One of the best insights I have had about the stock market is that prices of stocks are determined buy the number of people who initiate buy or sell orders. If more people are placing sell orders, the price will decline; if more people are placing buy orders, the price will rise.

This may not sound like a big "TAA DAA" at first. It's one of those ideas that is "obvious to the casual observer," as my college professors were fond of saying. But I think it is rather profound.

I believe most amateur stock traders (that would be anyone who doesn't make a living trading stocks) do a lot of research and reading in an effort to figure out which stocks to buy or sell. I used to do that. Most of that effort is a waste of time, because whatever you read is almost certainly written by people who do not actually buy or sell the stock. Remember - the price of the stock is determined by the number of people who actually buy and sell stock, not by people who write about it.

So, where can you find out how many people are initiating orders? Stock charts. Many sites on the Internet offer charts. The charts show a picture of trading activity, in some cases, right down to the minute. My favorite site for real time charts is: www.freerealtime.com .

You can also see historical charts on the Web. My favorite site for that is www.clearstation.etrade.com . www.bigcharts.marketwatch.com is a good site, too.

If the price on the chart is moving up, there are more buyers than sellers. If the price is moving down, there are more sellers than buyers.

The real trick is predicting when the activity will change direction. I haven't figured out how to do that, yet. I'll let you know when I do.