Where Can I Learn the Theory Behind Stock Trading?

[JG89]

I'm a young kid, 22 years old turning 23 in November. I've always been interested in the stock market, and as my dad is trades fairly extensively, I've picked his brain a bit. I want to start learning about how the market works, then start paper trading for practice, then if all goes well, to actually start trading.

I've tried googling for books on how to get started, but haven't really found much. I want to learn the theory to it, and I want to learn the maths behind it. I am a math guy, so this is how I learn. Does anyone know of any books or online sources from where I can start? I'm not just looking for articles giving tips on how to start. I want a textbook breaking down the theory.

All help would be appreciated, thanks

 

[Borek]

Why don't you start talking with your Dad?

 

[phylotree]

I'm a young kid, 22 years old turning 23 in November. I've always been interested in the stock market, and as my dad is trades fairly extensively, I've picked his brain a bit. I want to start learning about how the market works, then start paper trading for practice, then if all goes well, to actually start trading.

I've tried googling for books on how to get started, but haven't really found much. I want to learn the theory to it, and I want to learn the maths behind it. I am a math guy, so this is how I learn. Does anyone know of any books or online sources from where I can start? I'm not just looking for articles giving tips on how to start. I want a textbook breaking down the theory.

All help would be appreciated, thanks

Your post title really discourages me because I will have an interview for a SE in a finance company tomorrow and the word "started" just increases my fear of a very low salary they may propose. That's a little too fast for you to enter the stock world.

 

[Borg]

Lots of people have worked on trying to create mathematical models to describe the market but, there are a ton of variables involved. Plus, things like herd mentality can be just as big a factor in the value of a stock as anything else. The math behind the market boils down to one premise - buy low and sell high. The way that you do that is to know as much as you can about what drives the market and the stock that you are interested in. You also need to understand your goals - are you looking for long or short term profits? The strategies for these are very different.

Find a good website with articles that you trust. Here is one of my favorites - Seeking Alpha. I'm not saying it's the best or anything - just giving you a starting point. When you do decide to invest in a company, you need to do your homework - look at the fundementals of companies and industries. Read as much as you can about the company, how it relates to similar companies, and the industry as a whole.

The political climate can also drive the market. The current market for the last year has been bumped around by the debt crisis in Europe. This shows itself primarily in the bond yields that European countries have to pay. Yields above 7% are generally considered unsustainable and countries that remain at that level risk default (this is a bad thing ). Greece is currently in the worst shape, followed by Italy, Spain and Portugal. The market turmoil of last fall and winter subsided when a bailout package was agreed to by Greece. However, the austerity that came with that did not sit well with voters in Greece and France. Last weekend, the voters in those countries voted out those politicians and elected new ones who promised to overturn the agreements. While a Greek default might be survivable, the fear is that a Greek default could push one of the larger economies (like Italy) over the 7% cliff. That's the main thing driving the current downward trend.

Here are some articles for various investment analysis strategies (again, just a starting point):
Moving Averages
MACD (moving average convergence/divergence)

If you want to look at some of the data out there, here are some general links:
Map of the market
http://www.sec.gov/Archives/edgar/usgaap.rss.xml
Historical Stock data (Exxon as an example)

 

[Jimmy Snyder]

Start by making mental purchases and see how it goes. That way, if the stocks go down you won't lose any money, you'll just lose your mind.

 

[Borg]

Start by making mental purchases and see how it goes. That way, if the stocks go down you won't lose any money, you'll just lose your mind.

I've heard that somewhere before.

 

[russ_watters]

Did you actually mean trading or did you really mean investing? They are two very different things.

 

[JG89]

@Borg, thanks for those sources, I will check them out!

@russ, I want to do day trading.I've scheduled a study date with my dad this Saturday, so I shall pick his brain like I never have before!

Thanks guys!

 

[Devils]

Start reading. Buy into some mutual funds. Take small steps first.

 

[BishopUser]

Why day trading? The taxes are higher, you will pay a lot of brokerage fees (for frequent trading), and it is mostly gambling unless you have insider knowledge that the general public does not have. Not to mention you generally need $25,000 minimum to trade on margin (I think trading on margin is required for day trading).

 

[turbo]

Start by making mental purchases and see how it goes. That way, if the stocks go down you won't lose any money, you'll just lose your mind.

Good advice from the South Jersey guy. Make some theoretical purchases and spread-sheet them. That's no assurance of good returns, but it can show you how you can get screwed, especially when insiders manipulate the market short-term. We don't always get a fair shake (Rule #1).

 

[phinds]

As your father will undoubtedly tell you, paper trades don't do a very good job of reflecting day trades unless you go to excruciating detail in tracking the volume and spread when you make a trade. If you're trading a volatile but low-volume stock, your trade itself (if really made) can make a difference in the price that wouldn't matter for a long-term trade but can be significant for day trading.

If you father's broker's system has the option of doing "paper" trades but tracking actual purchases, it still won't be exact but it will be WAY better than paper trades and perhaps he'll let you do that on his account.

For your own account, as someone else already mentioned, you have to have a minimum of $25,000 in a margin account to actually do day trading, and since a loss or two can drop you below that you really should have quite a bit more to start.

 

[ThinkToday]

I'm a young kid, 22 years old turning 23 in November. I've always been interested in the stock market, and as my dad is trades fairly extensively, I've picked his brain a bit. I want to start learning about how the market works, then start paper trading for practice, then if all goes well, to actually start trading.

I've tried googling for books on how to get started, but haven't really found much. I want to learn the theory to it, and I want to learn the maths behind it. I am a math guy, so this is how I learn. Does anyone know of any books or online sources from where I can start? I'm not just looking for articles giving tips on how to start. I want a textbook breaking down the theory.

All help would be appreciated, thanks

Braver than me. I only deal in mutual funds. There is no way I will know more than the guys that do it every day, and they have bad days.

I like Jimmy Snyder's suggestion. I did some looking around and found this site http://www.nobletrading.com/virtual-stock-trading.php Trade all you want with virtual money and see how you do, before you put the "rent" on a hunch that is a fail

 

[Astronuc]

Study the market.

Right now, JP Morgan (JPM) is an interesting case. If one had bought it yesterday morning, or three days ago, one would be down about 10% right now. It dividend is about 3% now vs 2.70 two days ago. The bank just announced a loss of $2 billion (incurred this quarter) on a trade gone bad, and a further potential loss in the neighborhood of $1 billion.

It'll probably come back to around the low 40's. But watch.


It would be interesting to know how the trade went bad, i.e., did they bet some debt would go bad, and it didn't, or did they bet an improvement in a position that went bad.

Update: Here's where it went bad.
http://www.nytimes.com/interactive/...-chase-a-complex-strategy-that-backfired.html

When investing in a company - know (and understand) what it does, know (and understand) its competition and the market, and know how it affects the economy and how the economy affects it.