supercharge your trading & investment account using...

DANNY YOUNES

ii

Supercharge Your Trading &

Investment Account Using

Wyckoff / Volume Spread

Analysis

Danny Younes

Copyright © 2017 Danny Younes

All rights reserved.

ISBN-10: 1542517133

ISBN-13: 978-1542517133

CONTENTS

Foreword

Why I Wrote This Book

Introduction

1

4

6

1

2

Lifestyle Matrix

How the Markets Work

14

23

3 How, When & Why Markets Go Up and Down 28

4 What are Options 36

5 The Key to Using Options to Generate a Monthly Income 54

6

7

Minimize Risk = Buy Insurance

Once Upon a Time a Stock & Put Got Married – Married

Puts

77

88

8 Basics of Technical Analysis 95

9 How Wyckoff / Volume Spread Analysis Can Assist You in

Your Trading Decisions

110

10 Covered Call / VSA Stock Selection Criteria 138

11 How to Find Trading Candidates Using the TradeGuider

End of Day Software

164

12

13

Trading Plan

The Future of Volume Spread Analysis

174

193

DEDICATION

To my amazing wife, Georgette and my three children Nicholas,

Jacob and Joshua. Thank you for giving me the strength to keep on

keeping on. You guys are my rock, my pillar of strength. I love you.

1

FOREWORD

Foreword by Gavin Holmes, Author, “Trading in the Shadow of the

Smart Money.”

I had the good fortune to connect with the Author of “Supercharge

Your Trading & Investment Account Using Wyckoff / Volume Spread

Analysis” Danny Younes, several years ago, as an aspiring student of

the works of the great traders and investors, Richard D Wyckoff and

the late Tom Williams who passed away just before this book was

published.

Danny became a customer of TradeGuider Systems, the company that

owns the Wyckoff / Volume Spread Analysis trading and investing

methodology that Danny shows you in this book.

Danny attended many courses and webinars and was personally

coached by Tom Williams and myself, so I am extremely proud of his

achievement with this work which I know Tom would have been

extremely proud of as well.

As an author myself, I know how difficult actually writing a book is, but

I can say without a doubt that Danny has produced in this work one of

the finest books on the Wyckoff / Volume Spread Analysis trading

method currently available.

In “Supercharge Your Trading & Investment Account Using Wyckoff

/ Volume Spread Analysis” Danny goes well beyond the basic

principles of the Wyckoff / Volume Spread Analysis method, by

introducing trading strategies using options that can be used once a

stock has been located as a possible buy or sell based on accumulation

and distribution.

DANNY YOUNES

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As with anything in life, you need to be motivated to achieve your

goals, and Danny reminds us of this in each chapter with very poignant

quotes from Les Brown, Eric Thomas, Tony Robbins and Steve Jobs.

Trading and Investing in the financial markets has never been easier to

access thanks to the Internet, and more and more retail traders are

getting involved from all over the world. In the book, Danny explains

in detail the traps that get the uninformed “herd” traders into bad

positions and shows through detailed charts and news clippings how

the mainstream media is used to wrong foot this group into making

very poor trading and investment decisions.

Danny’s experience trading options are extensive, and he explains in

great detail strategies that you can use right now to grow your account

and mitigate your risk by insuring your positions, something many

traders and investors will be totally unaware off.

The book is easy to read, and the charts clearly show the key principles

that all traders and investors should understand before they risk real

capital in the markets. Danny generously shares with us his personal

trading plan at the end of the book, and this brings the book together

perfectly so the reader can take immediate action on the knowledge

they have received.

Like me, Danny’s mission is to enlighten and help the uninformed

traders and investors who get fleeced by Smart Money if they do not

have the correct knowledge.

In “Supercharge Your Trading & Investment Account Using Wyckoff

/ Volume Spread Analysis” Danny has achieved that objective in a

clear, easy to understand book that evens the odds for the retail trader

and investor and lifts the fog on how the financial markets REALLY

work.

I hope you enjoy the book as much as I did and I have already taken

two strategies from the book for use in the Wyckoff / Williams

Investment Portfolio Hedge Fund that I am running.

SUPERCHARGE YOUR TRADING & INVESTMENT ACCOUNT USING WYCKOFF /

VOLUME SPREAD ANALYSIS

3

Gavin Holmes 27/12/2016

DANNY YOUNES

4

WHY I WROTE THIS BOOK

There are various reasons why I wrote this book but there is one main

reason, and that is to assist the retail trader. From my experience, the retail

trader always loses out and it’s my mission to educate as many people as I can.

There are two road blocks that face the retail trader:

1. The financial markets are manipulated. I will explain in my book why the

markets are manipulated but more importantly how you can identify when the

markets are being manipulated and how to trade in harmony with the

professional traders, often referred to as the “Smart Money”.

2. The other reason is that many educators that teach retail traders how to trade

the financial markets use indicators that are lagging and most investors are

getting into poorly conceived trades based on these indicators. Indicators such

as MACD, RSI or Stochastics are based on mathematical formulas, and when

they notify you of entries, the markets more often than not will do the very

opposite. These educators mean well with the education they supply to their

customers. However, there are some customers who do make in trading. It is

now recognised there is a large number of traders and investors that do not

make it in the markets, consistently blowing up one’s account. It comes down to

being disciplined and having the belief in the strategy that you are trading and

most traders and investors do not have that belief and enter trades that are

poorly conceived.

When I started, I was getting into poorly conceived trades, when pricing action

broke out of consolidation I would get in on a trade. I would see an increase in

volume, the MACD indicator will tell me ‘it’s a buy’ only to find pricing action

going the other way. I needed to find a solution to this issue that I was having,

and I came across TradeGuider. TradeGuider opened my eyes to how the

financial markets really work, and I am grateful that we have crossed paths. One



5

thing I have in common with the CEO of TradeGuider, Gavin Holmes is that

we want to spread the word around the world about how the markets really

work and to educate as many retail traders as we can.

I also wanted to pay tribute to the late Tom Williams, the inventor of Volume

Spread Analysis, who through his work has certainly assisted many traders

around the world with their trading. His dream of computerizing the Wyckoff

method of trading has certainly come to fruition over the last fifteen years, and

it’s through his work I can bring you this book. Thank you, Tom, for sharing

your wisdom, you will be missed, may you rest in peace.

I hope you gain a lot of value from this book and that it assists you in your

trading. If you have any questions or you want to know more about the trading

method that I discuss in this book, please email me, [email protected].

At the start of every chapter, I have provided you with motivational quotes

from the likes of Les Brown, Eric Thomas, Tony Robbins and Steve Jobs.

Their words propelled me to write this book, and I hope their words will also

inspire you to fulfill your dreams.

6

INTRODUCTION

“The truth that will set you free, it’s the truth you don’t want to hear. You’ve got to

change; you’ve got to take responsibility for your stuff. You’ve got to clean your act

up. You’ve better get your life together; you’ve got genius in you. Challenge yourself,

push yourself, make yourself come up with something. Use your imagination. So

what, you fell flat on your face, so what. Learn from the experience and start again,

don’t count yourself out. Forget about the mistakes yesterday, forget about all your

failures yesterday, forget about all you had, that’s not important. The only thing that

we have is right now. What you will find is that you will know more than you

realize that you know. That you're more creative and more resourceful that you

realize that you are. See the universe responds to the man or woman that refuses to

be denied.

That business that you want, that dream that you have of controlling your destiny,

that is yours, that power to create that is yours, that’s available to you, but you have

got to be willing to stand there and face disappointment, not have support, be lonely,

doubt yourself sometimes, be rejected again and again and again, become bankrupt if

necessary. If it’s difficult so what, if it’s inconvenient, so what, don’t sentence yourself

to a lifetime of being miserable, a lifetime of being broke, a lifetime of being

unhealthy, a lifetime of being in a relationship that is no longer fulfilling to you. You



7

are a human being, don’t volunteer your life that way. Your life has too much value

to the universe, you’ve got something to contribute, you’ve got something to give, but

the challenge is to hold on, and if you hold on tenaciously, I say the universe is on

your side.” – Les Brown

DANNY YOUNES

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When it comes to investing in the stock market, the most popular

strategy is the Buy, Hope, and Pray. Investors buy an instrument and

hope it moves in your direction to make money. There is no certainty in

this strategy, and when it comes to investing, I want to put the

probabilities in my favour and get as close to certainty as I can. Buying

and holding stocks is so 1980s because it's a time bomb waiting to go

off. I want you to think about the following if you buy a parcel of

shares:

Do you make money if the stock price goes up?

Do you make money if the stock price goes down?

Do you make money if the stock price goes sideways?

There is only one scenario where the investor will make money, and

that is if the stock price goes up. So why do investors invest this way?

They have only one-third of an opportunity in making money. The

one thing it comes down to is that most investors are not educated.

You don't know what you don't know.

There is another interesting fact that I want to share with you. Most

investors invest in the stock market where they have 100% risk,

meaning there is a possibility that they may lose 100% of their money.

There is that chance that a stock that you’re investing in, can fall very

sharply or in some cases, I have seen companies that have been delisted

from an exchange. Take for example at the height of the financial crises

we had Lehman Brothers file for bankruptcy, and other bankruptcies

prior to the GFC such as WorldCom and General Motors just to name

a few.

Let's face it; most retail investors invest in the stock market with their

hard earned after tax dollars which they cannot afford to lose. Still, they

invest in the stock market with 100% risk, and this doesn't faze them. It

doesn't faze them as they don't look at trading from a risk management

point of view. They only think about it from a profit taking point of

view and completely ignore the downside.



9

Did you know that you can save so much heartache and money if you

purchased an insurance policy on your shares? Let me share with you a

real-life example which I think will hit home for you.

Prior to the Global Financial Crisis (GFC), BHP Billiton Limited

(BHP) on the Australian Stock Exchange (ASX) reached the highs of

AUD$45.30. Let's say you entered this stock at AUD$45.30 because it

broke a resistance level. The stock is on a magnificent run, and you fear

missing out on this fabulous up move, and everything seems to be

positive for the stock. You see articles about the company

stating "Shares in BHP Billiton have jumped on fresh speculation, a

Chinese investor is eyeing up to a 9% stake in the company. China is

the biggest consumer of iron ore, and the move would help China

secure supplies of key raw materials, such as iron ore and oil, needed to

fuel its booming economy". The news is positive on BHP, and you

invest in the stock thinking you are on a sure winner.

DANNY YOUNES

10

Figure 1: BBC news article, Chinese whispers fuel BHP shares



11

In a matter of six months, BHP plummeted from AUD$45.30 to a low

of AUD$18.12. How would you feel if you had entered BHP at

AUD$45.30, only to see it 6 months later at AUD$18.12? One word

would describe how you'll feel, devastated. The news around the stock

at the highs was positive; surely you were on a winner. So why didn't

the stock perform, it's a safe investment, it's a blue-chip stock?

I will show you later in this book how the financial markets are

manipulated by the professional traders (Smart Money) and that all is

not what it seems in the markets.

The stock of BHP is now trading at AUD$18.12, and all you can think

of is not losing all your hard-earned money. The pain in staying in a

trade which is losing you money is unbearable, so you exit out of the

trade with a loss.

What if this was a long-term investment such as in your retirement

account? The investment fund that you invest in has purchased BHP at

these highs, and investment funds usually invest in safe blue chip

stocks. It's August 2016 as I write this book, BHP is only trading at

around AUD$21.00. It hasn't gone back up above AUD$45.30 in the

last eight years.

DANNY YOUNES

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Figure 2: Stock chart of BHP

It has been eight years, and the stock has not produced a positive result.

Let’s say you held onto the investment for the long-term. Holding onto

a stock that is not producing a result is not an ideal investment. You’re

no longer looking at making a profit, you just want your initial

investment back, as you'll be satisfied with achieving a break-even

result.

If I told you that there was an investment opportunity where you had

only one-third of an opportunity in making money, would you consider

this investment opportunity? Most investors will not consider it, but a

lot of traders and investors invest by Buying, Hoping, and Praying.

Let’s face it they are not stacking the odds in their favour.

What I'm about to reveal to you is a trading strategy that has been

around since the 1970s, and many people do not know that it exists. It's

a strategy that several governments around the world allow you to

invest your retirement account because it's a safe strategy and it's much

safer than Buying, Hoping, and Praying, and you'll come to realize this

as you read through this book. You will kick yourself for not knowing

about it earlier. If you knew about this strategy, your trading &



13

investment account would look very different today.

How would you feel if I told you there was a strategy where you can

generate an income from your share portfolio regardless of whether the

stock goes up, down or sideways, you would still make money? You

probably think that this can't be true, but it is true, it's been around for

over 40 years, and it's a strategy that works for many traders and

investors who have embraced it. The strategy is called the “Covered

Call", and it’s a strategy where you can supercharge your trading and

investment account. Excited? I bet you are and I am excited to be

sharing this with you.

It's all well and good for me to show you a strategy that you can

implement, but what most traders and investors want to know is ‘How

do I find these trading opportunities?’ Throughout this book, I will

share with you a methodology known as Wyckoff/Volume Spread

Analysis (VSA). VSA will assist you in finding imbalances of supply and

demand in the financial markets and this knowledge would have

prevented you from investing into BHP back in 2008.

Most traders are aware of the two widely known approaches used to

analyze a market; fundamental analysis and technical analysis. Many

different methods can be used in each approach, but the fundamental

analysis is concerned with the question of why something in the market

will happen, and technical analysis attempts to answer the question of

when something will happen. Volume Spread Analysis, however, is a

third approach to analyzing a market. It combines the best of both

fundamental and technical analysis into a singular approach that

answers both questions of 'why' and 'when' simultaneously.

14

1

LIFESTYLE MATRIX

My commitment and obsession is always to be better today than I was yesterday. If I have to

make sacrifices to do that, so be it. If I have to tell that person, I can’t go out drinking

anymore, so be it, because that’s not what I value. Anything or anyone that is taking me

further away from my dreams has to go. I’m committed to self development, not self

destruction,m and you know, any person that is meant to be wiuth me on this journey will

choose the higher road with me. Yes, a tougher road, but it’s a much more rewarding one.

I want my life to mean something. To be able to look back at my life and say yeah, I made

some tough decisions, but they were the right decisions. So many people don’t get it. They piss

their life away every weekend for what? So that they can complain about their current

circumstances for the rest of the week, SCREW THAT, no chance, I am in charge of my

own life. It’s all on me; I take responsibility, I take action, and I get shit done.

You will never hear me complain about another person, or circumstances, the reason I’m not

where I want to be. If I don’t like where I am, time to knuckle down and work harder. I

am a perfect reflection of the hard work or lack of work I put in. And luck, that only comes

to those who have paid their dues. If I’m weak in a certain area, it won’t be for long, because

I’m committed to being better. I will learn, I will read, I will make it happen, I will find a

way. I will work until that weakness is turned into a strength. - Unknown



15

When it comes to investing in the financial markets, retail traders are

misled by the so called experts, that, trading the markets is easy and that

you can make a lot of money from the markets just by following some

simple steps. To be successful in the financial markets, there is a lot of

hard work and dedication for you to understand how the markets work,

and why and how the Smart Money drive the markets as they do.

Investors need to be disciplined to mark it in the markets. A failure to

be disciplined in the leads to retail traders continually donating back to

the markets. If it’s so easy to make money in the markets then why do

the majority of retail traders do not make money at all?

Lets move onto how traders invest their money. In the financial

markets, there are both low risk investments and high risk investments.

Usually, investors invest their hard earned after tax dollars into high risk

investments, as they want to make quick money, such as Forex, Futures

or Options which are leveraged instruments and there is a high

probability that they may lose their initial investment. Brokers play a big

part as to how beginner traders first invest in the markets. Some

brokers are there to assist and educate their clients about the markets

and wanting them to be successful, but there are a lot of brokers out

there that want you to trade, blow your account and refund and that is

their business model. I put these brokers under the same umbrella as

used car salesman. So be careful as to which broker you choose to

begin your trading journey. There is a disclaimer in the financial

industry that gets shown to investors on a regular basis;

Trading stocks, options on stocks, Futures, options on futures

and retail off-exchange foreign currency transactions (FOREX)

involves substantial risk of loss and is not suitable for all

investors. Past performance, whether actual or indicated by

historical tests of strategies, is no guarantee of future

performance or success. There is a possibility that you may

sustain a loss equal to or greater than your entire investment

regardless of which asset class your trade (equities, options,

DANNY YOUNES

16

futures or forex); therefore, you should not invest or risk money

that you cannot afford to lose.

The disclaimer is there to warn investors that there is risk in the

markets no matter what instruments you trade, but there are some

instruments that are higher risk than others. Also, past performance

does not guarantee future performance. So all in all the markets are

random, and I will highlight this to you in the chapters “How the

Markets Really Work”, and “When & Why Markets Go Up and

Down”.

In this chapter, I am going to discuss with you how you should

approach investing so that you can achieve longevity and don’t blow

your trading account. I find a lot of traders blow their accounts because

of the following reasons:

1. Chasing the money, investing in high risk investments with

money they cannot afford to lose and do not have a risk

management plan.

2. Not educated, not willing to put in the necessary effort to make

it in the markets, usually rely on hunches and tips

3. Traders are worrying about how much money they need to

make as opposed to executing good trades.

4. Don’t have the belief in themselves or the strategy that they are

implementing.



17

Figure 3: Traditional Investing

The diagram above shows how investors usually start investing in the

financial markets. They use their hard earned after tax dollars, their

income, usually putting in over 40 hours a week and they invest this

money into high risk investments. They cannot afford to lose this

money. This money is emotionally connected money, and with no plan

or education they continually donate back to the markets and don’t

make it. Most investors would like to fund their lifestyle by trading, but

it’s sad to say that the majority of investors will not be able to achieve

this.

When it comes to investing, you want to achieve longevity; you need to

be around for the long haul. You need to have a sound plan in place, a

plan that increases your chances of being successful. The plan that I

have in place and is something that you should seriously consider it’s

what I call the Lifestyle Matrix. The lifestyle matrix shows you how

you should spread your money into your investments. The diagram

below shows you the four quadrants of the lifestyle matrix; Income,

Low Risk Investments, High Risk Investments, and Lifestyle.

The Lifestyle Matrix works as follows:

DANNY YOUNES

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Income

Income is the money that you earn from your JOB or business. It’s

money that you earn in exchange for products or services, your blood,

sweat and tears. This money is emotionally connected money, and if

you were to lose this money, it would have a significant impact on your

lifestyle. That’s why we need to be smart as to how we invest our

money.

Low Risk Investments

In my opinion, allocate a portion of your income to invest in into low

risk investments. Recall what the financial disclaimer stated, “You

should not invest or risk money that you can’t afford to lose”. Then

you should not invest your income in high-risk investments. Wouldn’t

it be wise to invest your income into low risk investments, where you

have that sleep at night factor? The Covered Call strategy is a low risk

investment because we own the shares while we write (sell) a call

option. In effect, we are receieving the shares we buy at wholesale price

(more on that later).

We aim to achieve a 3-9% return per month with insurance in place.

These returns will vary depending on volatility in the markets and the

sort of stocks that you decide to trade. Low risk investing not only

means protecting against the chance of any loss, but it also means

making sure that none of the potential losses will be devastating. The

downside of low risk investments s that you are likely to receive a very

small return.

High Risk Investments

A high-risk investment is an investment that carries a high degree of

risk, meaning; there is a strong chance that you could lose a substantial

amount (or all) of your investment. Your high-risk investments are

instruments such as Spot Forex, Futures, Options to name a few. These

instruments are highly leveraged instruments. The benefits of high risk

investments are that there is a chance that you can make a very high



19

return on the investment as well.

I get asked a lot from traders and investors when they should start

investing in high risk investments. My answer to this question is only to

do this when you have mastered your Volume Spread Analysis (VSA)

trading strategy, and you have the confidence and the belief to trade it,

and you are producing consistent results. If your strategy works for you

when investing in low risk investments, it will certainly work for you

when investing in high risk investments.

The money that we use to invest in high risk investments are the profits

from our low risk investments.

Just think about that for a second!!!

We are using the profits from our low risk investments, and these

profits are now not emotionally connected money, so you won’t be

disappointed if you lose that money. You see how we are investing

now?

So now you can invest your profits into Spot Forex, Futures or

Options. What I usually do is if I am bullish on a stock and I have

placed a covered call trade on it. With the covered call trade, I am paid

upfront, that’s the beauty of the strategy. The profits that I generate

from the strategy I use to purchase a call options on the same stock. So,

in effect, I have a double whammy. I receive a 3-9% return on the

covered call strategy, and on the bought call there is a real possibility to

achieve 200-500% return.

Lifestyle

I know that this is starting to sound exciting, but I don’t want you to

lose sight on investing in low risk strategies, build your account and

then venture into high risk strategies. The ultimate goal of any trader

and investor is to fund their lifestyle from the markets and what better

way to fund it with the return from your high-risk investments.

DANNY YOUNES

20

Your high-risk investments will create the bulk of your profits. What

better way to grow your trading and investment account than to invest

in low risk investments and use those profits to invest in high risk

investments and ultimately fund your lifestyle from your high-risk

investments. What would you buy is it that exotic car that you’ve always

wanted or taking the family on that well deserved holiday. I hope the

lifestyle matrix makes sense to you and you start using it in your

investing.

Some traders and investors fund their lifestyle from low risk

investments alone. That is perfectly fine as well. The way that these

traders and investors achieve this is by compounding their returns, the

eighth wonder of the world.

Figure 4: Lifestyle Matrix



21

Law of Compounding

With the covered call strategy, you should look to compound your

returns so that you can grow your account on a monthly or yearly basis.

Albert Einstein once described that compound interest is the most

powerful force in the universe. Compounding is where you re-invest

your returns enabling you to grow your account. With the Covered Call

strategy, we aim to generate an income between 3-9% per month. Let’s

see how powerful the law of compounding is by taking a $10,000

account and with a 3% return on a monthly basis, let’s see how quickly

you can grow your account.

Month Running Balance Return

January $10,000.00 $300.00

February $10,300.00 $309.00

March $10,609.00 $318.27

April $10,927.27 $327.81

May $11,255.08 $337.65

June $11,592.73 $347.78

July $11,940.51 $358.21

August $12,298.72 $368.96

September $12,667.68 $380.03

October $13,047.71 $391.43

November $13,439.14 $403.17

December $13,842.31 $415.26

Total $14,257.57

We started off with a balance of $10,000, and with a 3% return a month

we grew our account to $14,257.57 in 12 months. If we could achieve a

conservative 3% return per month, our annual rate of return would be

36%

DANNY YOUNES

22

Compounding and the rule of 72

The rule of 72 identifies for us the number of years required to double

our money at a specific interest rate. You divide your annual compound

return into 72. The result is the approximate number of years that it will

take your investment to double.

If we achieve a conservative 3% per month return, that means the time

it will take to double our investment would be two years (72/36). So, a

$10k account to grow to $100k in a five-year time frame. The certainly

demonstrates how powerful compounding can be.



23

2

HOW MARKETS REALLY WORK

“You can’t connect the dots looking forward; you can only connect looking

backward. So you have to trust somehow, that the dots will connect somehow in your

future. You have to trust in something, your gut, destiny, life, karma or whatever.

Because believing that the dots will connect down the road, will give you the

confidence to follow your heart, even when it leads you off the well-worn path. And

that will make all the difference. Your time is limited, so don’t waste it living

somebody else’s life.

Don’t be trapped by dogma, which is living with the results of other people’s

thinking. Don’t let the noise of other people's opinion drown out your inner voice.

You’ve got to find what you love, and that is true for your work as it is for your

lovers. Your work is going to fill a large part of your life, and the only way you are

going to be truly satisfied is to do what you believe is great work, and the only way to

do great work, is to love what you do. If you haven’t found it yet, keep looking and

don’t settle. Have the courage to follow your heart and intuition, they somehow

already know what you truly want to become.” – Steve Jobs

DANNY YOUNES

24

Welcome to the largest business in the world. Every day billions of

dollars exchange hands in the world stock markets, financial futures

and currency markets. Trading these markets is by far the biggest

business on the planet. The average person has no idea what drives the

financial markets. Even more surprising is that the average trader

doesn't know what drives the markets either. So, despite financial

trading being the largest business in the world, it's also the least

understood business in the world.

Sudden moves are a mystery, arriving when they are least expected,

appearing to have little logic attached to them. Frequently the market

does the exact opposite of a trader’s intuitive judgment. Even those

people who make a living from trading, particularly the brokers and the

pundits, who you would expect to have a detailed knowledge of the

cause and effect in their chosen field, very often know little about how

the markets work.

Essentially the financial markets show a lot of similarities within the

other types of markets. If you look, for instance at a street market, it

consists of four things; location, items for sale, buyers, and sellers. The

location is known as a place to buy and sell items. The prices advertised

by the seller is what the seller thinks they can get based on the

competition in the location and the demand for the products by the

passing buyers. In a buyers’ market, the prices fall, and in a sellers’

market, where the demand is high, they rise.

The financial markets are not much different. Instead of antiques,

clothes, and food, what’s sold here are stocks, commodities, currencies

and derivatives. Buyers purchase stocks and commodities through the

trading exchanges such as the New York Stock Exchange (NYSE) or

the Australian Stock Exchange (ASX). The sellers also sell through the

exchanges with both sides using brokerage firms to transact the

business.



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Stock markets grew out of small meetings of people who wanted to buy

and sell their stocks. These people realized that it would be much easier

to make trades if they were all in the same place at the same

time. Today, people from all over the world use the stock markets to

buy and sell stocks in thousands of different companies.

Stock Exchanges register stocks when issued to investors, such as the

U.S. Securities and Exchange Commission or the London Stock

Exchange. A prospectus gives details about the companies’ operation

and the stock to be distributed to interested parties. Investment bankers

buy large quantities of the stock from the company and re-sell the stock

on the exchange.

Sitting between the markets and buyers and sellers are the brokerage

firms. These firms act as an intermediary between the market and buyer

or seller. A potential buyer places an order with a broker for the stock

he/she wishes to purchase. The transaction takes place when someone

wants to sell, and someone wants to purchase at the same price.

When you purchase a stock, you receive a stock certificate. The

certificate may be issued on paper or issued electronically. It may be

transferred from one owner to another, or the broker can hold it on

behalf of the investor.

What Affects the Markets?

There are several factors that affect the markets. They are individual,

institutional, mutual funds and investors all affect market prices. If a

large number of people want to buy a certain stock, the price of the

stock initially is going to rally. Just as if there were many people bidding

on an item at an auction. Both the condition of the individual business

and the strength of the industry that it resides will affect the price of its

stock. Profits earned, the volume of sales and even the time of the year

will also affect how much an investor wants to own a stock.

DANNY YOUNES

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Governments make all kinds of decisions that affect how much an

individual stock may be worth and what sort of instruments people

want to be investing in. The government's interest rates, tax rates, trade

policies and budget deficits all impact prices.

General trends that signal changes in the economy are watched closely

by the investors to predict what is going to happen next. Indicators

include the gross national product, the inflation rate, the budget deficit

and the unemployment rate. These indicators point to changes in the

way ordinary people spend their money and how the economy is likely

to perform.

Events from around the world and changes in currency values, trade

barriers, wars, natural disasters, epidemics and changes in government

all affect how people think about the value of different investments and

about how they should invest in the future.

Today, investments can be bought and sold around the clock. When

the Tokyo markets have just closed, for example, the London market

takes over, and when London closes the New York exchanges take

over. When big moves in price occur in one market, the other markets

can be affected too.

A bull market and a bear market are terms used to describe market

trends. A bull market is a period when prices are rising. If investors feel

that they will be in a bull market, they will feel confident in investing,

adding to the growth of the market.

A bear market is a period when stock prices are falling. If investors

think that the markets are falling, they will sell stock at lower prices.

Each of these markets is fueled by investors’ perceptions of where the

economy and markets are going. These trends can quickly change.

The first secret in learning to trade successfully is to forget about the

intrinsic value of stock or any other instrument. What you need to be



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concerned with is its perceived value, its value to the market and not

the value that it represents as its interest in the company. This is a

contradiction that undoubtedly mystifies the directors

of strong companies with a low stock value. From now on it's the

perceived value which is reflected in the price of the stock.

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