Some History

• The New York Stock Exchange was born when the first Congress met in Federal Hall in 1789 to assume the debts of the new colonies and government.

• The stock market began trading formally in 1792. 

• In 1827, a new Merchants Exchange Building, erected at Wall and Hanover streets, housed the New York Stock and Exchange Board. 

• By 1842, the American Stock Exchange opened its doors. 

 

 

The Dynamics of the Stock market: Greed & Fear

 

Each day, the stock market and prices reflect a tug-of-war between the bears and bulls. Before any trade is placed, the intelligent trader must know who is in control. In a strong market with upward momentum, the bulls are in charge. However, if the market is in a decline, the bears are in power. 

 

When the volatility indicators show that the bulls and bears are gridlocked and the market experiences very little to no price movement, sometimes the best plan of action is to simply not trade. 

 

Greed and fear dominate the stock market in that they are everpresent in nearly all the main stakeholders. When strong stocks explode in a bull market, greed explodes as well, driving prices even higher due to an influx of speculative-based and vehement demand. By the same token, once prices begin to fall, this action stimulates a wave of fear among traders, thus catalyzing greater sell-offs. Over-responses to market movements have a multiplier effect that further extends the magnitude of price action in a given bullish or bearish direction. Emotions are at therefore at the crux of market movements.

 

Dominating Greed and Fear is achieved through experience and by absorbing the knowledge of those who have already dominated these emotions. 

 

A Further Look at Supply and Demand

 

 

Prices are influenced by supply and demand. Demand is defined as the relationship between consumers and a certain good or service. When the price of said good or service increases, the number of consumers able and willing to consume it decreases. Inversely, when the price of the good or service decreases, there is a greater number of consumers able and willing to purchase it. In more simple terms, as an object becomes cheaper, more people want it; demand rises. When the object becomes more expensive, fewer people are able and willing to buy it; demand falls. 

 

Supply, on the other hand, regards the relationship between suppliers and the market price. As the price of an object rises, all suppliers equipped to produce it see a lucrative opportunity to make a profit. When prices rise, supply rises as well.

 

"The shortage of an attractive stock at a given price causes market players to desire it more. Those who control the stock demand higher prices because buyers agree to pay those prices." 

 

Price: The Bottom Line

 

When buyers and seller in the stock market agree to a transaction, money is exchanged for equity. This means that both actors have different emotions and projections on the future of the equity's price. The buyer purchases the stock because he considers it a bargain. He, therefore, expects the stock to rise in price. The seller, on the other hand, expects the price of the stock to fall and therefore sells it. 

 

"The trader who is buying the stock from you, or selling it to you, holds the opposite opinion of the stock's future direction." (pg.13)

 

"The trick is to predict price movement accurately enough of the time that our profits are larger than your losses" (pg.13).

 

Equities Exchanges

 

 

Three largest equities exchanges are the New York, NASDAQ, and American Stock Exchange. 

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NYSE:

 

• The NYSE lists more than 2,700 stocks (listed securities). These are mainly blue-chip iconic companies such as IBM, Boeing, Johnson & Johnson. 

• Thirty equities (majority listed in the NYSE) make up the Dow Jones Industrial Average, dubbed "Dow", or DJIA. It is the most closely watched market indicator in the world. The symbol DIA is the DOW ETF (Exchange Traded Fund).

 

NASDAQ (National Association of Securities Dealers Automated Quotron):

 

• Opened in February of 1971

• The largest fully-electronic stock market in the United States. 

• Lists 3,300 companies and trades more shares per day than any other U.S. market. 

• Often referred to as tech-heavy despite having many retail industries, financial services, and transportation companies represented. This is because of Oracle, Google and Microsoft, among others, they take up a large portion of the NASDAQ pie. 

• NASDAQ 100 index: top nonfinancial stocks. QQQQ is the stock's ticker. 

• Active NASDAQ stocks are the day trader's "playground". More attention the stock receives, the more volatile it can become. 

• New traders are recommended to trade NYSE stocks. 

 

The American Stock Exchange (AMEX): 

 

• Third most active market in the U.S.

• Founded in 1842

• Also contains specialists that trade stocks, ETFs, and options. Also referred to as "listed" securities. 

 

Bid, Ask and Offer

 

               Example Quote: Bid: 13.78, Ask: 13.79

 

With the inside bid, if I seek to sell my security, the highest price I will receive will be 13.78. 

With the inside ask, If I seek to buy a security, the lowest price I will receive will be 13.79. 

The Market Makers profit from the spread (the difference between ask and sell price).

 

 

Stocks chasing: Stocks run up on news, then they experience a pullback. Even before the information is available, insider buying has most likely occurred. "The stock may have already absorbed a lot of buying and is ready for a pullback". Those who already own a touted stock use the run-up to take unexpected profits. 

 

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