Lesson 1 and 2

Primary Trend or Secular Trend

•  Measured in Months or Years

 Secondary or Intermediate Trend

Measured in Weeks and Months

Short-Term Trend

Measured in Days

Intraday Trend

 Measured in Minutes and Hours

Uptred

Higher highs Higher lows

Down trends

\  lower highs and lower lows

Sideways

 a range between highs and lows. This is the hardest market to trad

Direct Search Market

- least organized. Buyers and sellers must seek eachother out.

Brokered Market

brokers specialize in bringing buyers and sellers together. Real

Estate is an example of a brokered market.

Dealer Market

dealers trade assets for their own account, offering to buy and sell

at specific prices. Nasdaq is a dealer market.

Auction Market

- all participants converge in one place where all information is

centralized. It can be an exchange or electronic. The NYSE was the most famous

auction market prior to technology.

Cash Market or Spot Market

the oldest type of market where a contract is entered

that results in an immediate exchange of the agreed upon items. The majority of equities trade in the cash market. Liquidity is usually very high in cash markets.

Futures Market

- the buyer and the seller agree to trade at specific terms on a

specific date. First traded in the U.S. on the CBOT in 1848.

Options Market

- the buyer of an option has the right, but not the obligation, to

complete the transaction before the expiration date. Specific terms are usually set by the exchange

Trend Timeframes

Secondary/intermediate Trends, Short Term Trend, Intraday Trend

Types of Market Players

Informed, Noise, and Liquidity

Informed

known as the smart money. These are professional money managers,

company insiders, position traders and speculator

Noise

also known in the past as “dumb money.” This used to describe the average public investor. These are “uninformed” traders.

Liquidity market

- investors who are acting because they have to. A hedge fund that is

shutting down or has had large redemptions. An index fund that has to buy a stock because it is being added to a particular index

Types of Averages

Price Weighted, Market Cap Weighted, Equally Weighted

 Price-Weighted

(Sum of the prices of each stock)/a divisor which changes to account for splits and dividends.

Market Capitalization Weighted Average

Price of the stock * # of shares that are tradable in the market and then determines the weight of that stock for the index

Equally Weighted Average

there is an equal weight given to every stock in the index.

Takes an average of each of the percentage price changes of each stock in the index

Characteristics of a Tradable Market

Easy access to information, contract trades the same accros exchanges, you can buy and sell without making a siginifcant impact on the price of what you are trading.

Dow Theory

secondary and minor trends in the market could be manipulated but the primary trend could not.

2. The Averages Discount Everything - prices are the result of people acting on their knowledge, interpretation of information and expectations.

3. Dow Theory is not Infallible - nothing in the market is going to work 100% of the time