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B u s i n e s s C u l i n a r y A r c h i t e c t u r e C o m p u t e r G e n e r a l I n t e r e s t C h i l d r e n L i f e S c i e n c e s B i o g r a p h y A c c o u n t i n g F i n a n c e M a t h e m a t i c s H i s t o r y S e l f - I m p r o v e m e n t H e a l t h E n g i n e e r i n g G r a p h i c D e s i g n A p p l i e d S c i e n c e s P s y c h o l o g y I n t e r i o r D e s i g n B i o l o g y C h e m i s t r y WILEYe WILEY JOSSEY-BASS B O O K PFEIFFER J.K.LASSER CAPSTONE WILEY-LISS WILEY-VCH WILEY-INTERSCIENCE THE STOCK MARKET COURSE WILEY TRADING ADVANTAGE Beyond Candlesticks / Steve Nison Beyond Technical Analysis / Tushar Chande Campaign Trading / John Sweeney Contrary Opinion / R. Earl Hadady Cybernetic Trading Strategies / Murray A. Ruggiero Jr. Day Trade Part-Time / John Cook and Jeanette Szwec Encyclopedia of Chart Patterns / Thomas Bulkowski Expert Trading Systems / John R. Wolberg Fundamental Analysis / Jack Schwager Gaming the Market / Ronald B. Shelton Genetic Algorithms and Investment Strategies / Richard J. Bauer Jr. Intermarket Technical Analysis / John J. Murphy Long-Term Secrets to Short-Term Trading / Larry Williams Macro Trading and Investment Strategies / Gabriel Burstein Managed Trading / Jack Schwager McMillan on Options / Lawrence G. McMillan Neural Network Time Series Forecasting of Financial Markets / E. Michael Azoff New Market Timing Techniques / Thomas R. DeMark New Trading Dimensions / Bill Williams Nonlinear Pricing / Christopher T. May Option Market Making / Alan J. Baird Option Strategies, Second Edition / Courtney Smith Pattern, Price & Time / James A. Hyerczyk Point and Figure Charting / Thomas J. Dorsey Profits from Natural Resources / Roland A. Jansen Schwager on Futures / Jack Schwager Seasonality / Jake Bernstein Stock Index Futures & Options / Susan Abbott Gidel Study Guide for Trading for a Living / Dr. Alexander Elder Study Guide to Accompany Fundamental Analysis / Jack Schwager Study Guide to Accompany Technical Analysis / Jack Schwager Technical Analysis / Jack Schwager Technical Analysis of the Options Markets / Richard Hexton Technical Market Indicators / Richard J. Bauer Jr. and Julie R. Dahlquist The Day Trader’s Manual / William F. Eng The Dynamic Option Selection System / Howard L. Simons The Hedge Fund Edge / Mark Boucher The Intuitive Trader / Robert Koppel The Mathematics of Money Management / Ralph Vince The New Market Wizards / Jack Schwager The New Money Management / Ralph Vince The New Options Market, Fourth Edition / Max Ansbacher The New Science of Technical Analysis / Thomas R. DeMark The New Technical Trader / Tushar Chande and Stanley S. Kroll The Option Advisor / Bernie G. Schaeffer The Options Course / George A. Fontanills The Options Course Workbook / George A. Fontanills The Stock Market Course / George A. Fontanills and Tom Gentile The Stock Market Course Workbook / George A. Fontanills and Tom Gentile The Trader’s Tax Solution / Ted Tesser The Trader’s Tax Survival Guide, Revised Edition / Ted Tesser The Trading Game / Ryan Jones The Ultimate Trading Guide / John Hill, George Pruitt, and Lundy Hill The Visual Investor / John J. Murphy Trade Options Online / George A. Fontanills Trader Vic II / Victor Sperandeo Trading Applications of Japanese Candlestick Charting / Gary Wagner and Brad Matheny Trading Chaos / Bill Williams Trading for a Living / Dr. Alexander Elder Trading on Expectations / Brendan Moynihan Trading Systems & Methods, Third Edition / Perry Kaufman Trading the Plan / Robert Deel Trading to Win / Ari Kiev, M.D. Trading with Crowd Psychology / Carl Gyllenram Trading without Fear / Richard W. Arms Jr. THE STOCK MARKET COURSE George A. Fontanills and Tom Gentile JOHN WILEY & SONS, INC. New York • Chichester • Weinheim • Brisbane • Singapore • Toronto This book is printed on acid-free paper. ∞ Copyright © 2001 by George A. Fontanills, Tom Gentile, and Richard M. Cawood. All rights reserved. Published by John Wiley & Sons, Inc. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: [email protected]. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Designations used by companies to distinguish their products are often claimed as trademarks. In all instances where the author is aware of a claim, the product names appear in Initial Capital letters. Readers, however, should contact the appropriate companies for more complete information regarding trademarks and registration. Library of Congress Cataloging-in-Publication Data: Fontanills, George. The stock market course / George A. Fontanills and Tom Gentile.—1st ed. p. cm.—(Wiley trading advantage) Includes bibliographical references and index. ISBN 0-471-39315-0 (cloth : acid-free paper) 1. Stocks—United States. I. Gentile, Tom, 1965– II. Title. III. Series. HG4910.F598 2001 332.63'22—dc21 00-053368 Printed in the United States of America. 10987654321 I would like to dedicate this book to the Optionetics.com staff, writers, and traders. Their innovative ideas and commitment to excellence, hard work, and constant good humor are the reasons Optionetics.com is enjoying such phenomenal success! Thank you, one and all. Disclaimer Hypothetical or simulated performance results have certain limitations. Un- like an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact, if any, of certain factors, such as lack of liquidity. Simulated trading programs in general are also sub- ject to the fact that they are designed with the benefit of hindsight. No repre- sentation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is a risk of loss in all forms of trading. Important Notice Trading stocks and options has large potential rewards, but also large poten- tial risks. You must be aware of the risks and willing to accept them in order to invest in the markets. Do not trade with money you cannot afford to lose. This is neither a solicitation nor an offer to buy or sell stocks or options. This book is published for educational purposes only and should not be relied upon. Consult a licensed professional about your individual trading. Prior to buying or selling an option, your brokerage firm should send you a copy of Characteristics and Risks of Standardized Options. Copies of this document are also available from the Chicago Board Options Exchange, 400 South La Salle Street, Chicago, IL 60605, or can be viewed at the CBOE’s web site (www.cboe.com), or at www.optionetics.com. Acknowledgments After my first two books on option trading were published, I was approached about writing a comprehensive book on how to trade the stock market. At first the prospect of writing a book on a scope as wide as the stock market shook me to the core. But being the kind of person who loves a challenge, I soon warmed up to the idea. It has been a long, sometimes arduous, journey. After years of experience teaching people how to trade options, I have learned many things about the process of learning. First and foremost, you can’t teach any- one anything unless they have the desire to learn. Second, everyone learns at his or her own speed. Third, you have to break the complexities of trading down into bite- size, understandable pieces that are interesting enough that people naturally con- tinue the learning process because they get it. If it gets too complicated, people give up. Learning involves a feeling of accomplishment with a few epiphanies thrown in here and there to spice things up and keep the process engaging. I am hopeful that this book not only accomplishes these goals, but also helps people to understand the stock market and gives them enough tools to make money in it. As usual, I could not have written this book without the supreme effort of the Optionetics.com staff and the research team that helped put it all together. I would now like to take the time to acknowledge each one of these brilliant people. At the top of the list, I want to thank my coauthor for this book, Tom Gentile. As Chief Options Strategist at Optionetics.com and coinstructor at Optionetics Semi- nars, Tom is one of the most brilliant traders I have ever had the pleasure to know.
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