Before We Get Started

The aim of this first section is to make sure everyone taking the course has a baseline of understanding about general financial terms, the stock market, and investing. This section will also highlight the difference between investing and trading.

We want to cover:

• Introduction to Financial Markets
• Basics of Investing 
• Fundamental Financial Terms 
• Introduction to Trading 

Within this course, you will learn the technical skills necessary to master the market. Before we get started, I think it would be a good idea to cover some basic knowledge about financial markets, investing in general, and how stock markets work. Having a solid foundation of financial understanding is the best way to get the most from this course. Even if you would consider yourself knowledgeable about finance, this section should help refresh your memory and familiarise you with the terms we will be using in this course. Of course, the information provided to you in this course is general in nature and is not tailored to your specific needs or any specific stock, trade or investment decision.

Introduction to Financial Markets

The financial markets are the bedrock upon which economies are built, and although we think about them on a global scale, they affect our day-to-day lives more than you might realize. The goal of the financial system is to facilitate the flow of money throughout our society. Financial markets are most effective when allocating capital efficiently, managing risks, and protecting investments to stimulate economic growth. Of course, markets don't always function efficiently and there are many instances throughout history of market crashes, recessions, and even depressions. 

Three of the most common kinds of financial markets are

• Stock Markets – for the purchase and sale of equities which are shares in publicly traded companies, listed on exchanges such as the New York Stock Exchange (NYSE)
• Bond Markets – for the purchase and sale of government and corporate debt instruments such as government bonds
• Foreign Exchange (FOREX Markets) – for the trade of currencies across borders in a highly liquid global marketplace 

The key players in these markets have unique responsibilities for the efficient flow of capital. Let’s look at some of the main participants:

• Investors – whether individuals or large corporations, investors engage in the markets with the expectation of increasing their capital investment, usually over a long time horizon
• Traders – usually operate over a much shorter time horizon than investors, and seek to make their money based on stock price movements and market fluctuations
• Brokers – act as intermediaries for sales and purchases of stock, acting on behalf of investors and traders 
• Regulators – oversee the markets to ensure that all participants are acting legally and ensuring fairness for the investor and trader

Financial markets usually impact each other, for example, a rise in bond prices can also impact stock prices, and forex fluctuations can affect the valuations of a country's stock market. Understanding how the markets work is helpful as you learn about the intricacies of trading as you will be able to inform your decision-making with information from a variety of sources. 

Basics of Investing

Investing is a broad term that generally refers to the process of putting money into assets, funds, or markets with the intention that the money will grow over a period of time. While investing is never an exact science, you can mitigate your risk by studying the fundamentals of the stock that you are investing in, understanding market fluctuations and seasonal trends, and diversifying your risk over a number of dissimilar asset classes. 

When you invest in a single stock in the stock market, you are essentially buying a very small piece of a publicly traded company. For example, if you have studied the financials of Tesla and you feel that will be a profitable company over the next ten years, then you might choose to allocate some of your capital to Tesla stock. This is known as value investing – you see the value in a company based on its financials and fundamentals, and choose to invest.

You could also choose to diversify your investment by individually buying stock in many different companies, or you could choose to invest in what is known as an Exchange Traded Fund (ETF). These are similar to mutual funds and they work by pooling investments from hundreds of thousands of investors and investing the pooled money across a number of different market segments and individual stocks. However, unlike mutual funds, ETFs are passively managed, resulting in lower fees and making them a more popular investment choice. ETFs are also publicly traded (unlike mutual funds) and are therefore subject to general market fluctuations.

By investing in an ETF you are automatically diversifying your investments, but you can further diversify by investing in Bonds, Real Estate, or other asset classes that are not included in the ETF. Diversification is essential for risk management and it helps to protect your portfolio from unexpected shifts in one sector. Another way to protect your downside is to invest regularly and often, instead of putting in large amounts at once. Investing is very different from trading, and understanding the principles of good investing will help you build a solid foundation for responsible trading.

Fundamental Financial Terms 

There are some key terms that you will hear used often when talking about financial markets. Remember that most financial terms are designed to sound complicated but they are very simple once you get to know them. You will come across these often in your trading research and you will learn many new ones in the coming weeks. But for now, let's take a look at the basics:

• Market Capitalisation – also known as market cap, this term is commonly used when talking about an individual company. The market cap of a company is a metric used to calculate the value of the company's outstanding shares which represents total market value. Knowing this value helps to give an idea of the size of the company and that's why companies are often referred to as small-cap, mid-cap, and large-cap
• Dividends – some companies choose to let investors share in their success and pay them a dividend. The value of the dividend is expressed as a percentage of the share price so if a company has a share price of $100 and pays a 5% dividend, then the investor will receive $5 per year
• P/E Ratio – this is a very common term used in value investing which helps to understand the potential profitability of an investment based on the company’s share price in relation to its earnings. The correct term is Price to Earnings Ratio and if a company has a high P/E ratio it could indicate that the stock is overvalued. As a general rule, value investors would ideally like the P/E to be between 20 and 25, any lower than this and the company may be undervalued and could signal a fantastic opportunity 
• Bull and Bear Markets – you will have likely heard these terms but possibly do not understand exactly what they mean. When trying to remember which one is which, think about the shape of the animal – a bull is usually shown with its horns pointing upwards, while a bear lunges downwards at its prey. We call investors who are optimistic “bullish” and those who are fearful “bearish”, and a market is officially declared a bear market when prices fall by more than 20% over a period of time
• Market Indexes – we often group stocks together based on a key characteristic and use these groups as indexes to tell stories about the wider economy. The S&P500 is a collection of the 500 largest publicly traded companies in America at any one time and so it provides useful insights on the strength of the US economy. The NASDAQ composite is an index of all companies actively trading on the NASDAQ exchange which is mostly made up of technology stocks, so it serves as a useful indicator of the technology industry 

In the next few sections, we will be covering many more terms as I provide you with the information needed to learn the intricacies of trading. But until then, test your knowledge and understanding of these terms by reading websites like MarketWatch and Morningstar. You will be fluent in the language of investing in no time!

Introduction to Trading 

For the rest of this course, we will be focusing on the technical aspects of trading and you will be learning many new things. But before we finish this section let’s cover a few basic fundamentals to get you started. 

There are three key differences between investing and trading:

• Time Horizon – trading is focused on much shorter time horizons which can be several seconds to a few months, but investing is more focused on retirement planning and spending years in the stock market
• Frequency – traders will make many transactions and the frequency of these could be as many as hundreds of transactions a day, whereas investors may contribute to the market once per month and sell stocks after many years
• Analysis – trading involves market timing and technical analysis, which you will learn about in the next section, but investing is focused on fundamental analysis and longer-term stock value

Over the next four weeks, you will learn about different kinds of trading such as day trading, swing trading, and position trading. The differences in these types of trades refer to the length of time that you hold the stock. Day trading implies that positions are opened and closed on the same day, swing trading means you can hold the positions for several days or even weeks and position trading is usually over longer periods. In this course, we will be focusing on swing trading and investing. 

Hopefully, this introductory section has reaffirmed some of your previous understanding of financial markets and taught you some terminology that you might not have heard before. In the next section, we will take a deep dive into the intricacies of analysis and you will learn the key difference between Fundamental and Technical analysis, as well as how to read and understand trading charts.

Lesson Summary

Welcome to the world of online trading advice! There are countless sources of information, but not all are reliable. This course is designed to provide you with a structured journey through seven key areas:

• Technical Analysis
• Stop-Losses
• Order Types
• Fundamental Analysis/Stock Valuations
• Emotions and The Psychology of Trading
• Norbert's Gambit and Efficient Money Transfers
• Tax Implications and Strategies for Trading within a TFSA

We start with technical analysis, which forms the foundation for informed trading decisions. Next, we explore stop-losses for safeguarding your progress, followed by Norbert's Gambit for currency exchange efficiency. After that, we dive into TFSA for tax-efficient investing and the psychological aspects of trading to master emotions in decision-making.

Through a decade of experience, the instructor shares insights gained from personal trading adventures, emphasizing that building a successful strategy requires a long-term view and emotional control combined with technical analysis.

The journey delves into candlestick patterns, Bollinger bands, and volumetrics, providing a broader perspective beyond daily market fluctuations. By focusing on assessing stocks over longer horizons, the course aims to improve not only trading outcomes but also quality of life by avoiding short-term thinking.

Join this course to discover truly useful indicators in technical analysis that can enhance your trading strategies and lead to success in the trading world.