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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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EIGHT

Trading Vehicles

  1. Answer 8-1: C

    Trading liquid high-volume vehicles helps reduce slippage. Volatile fast-moving instruments offer more opportunities. It pays to focus on the markets whose main trading hours are close to your own time zone, so that you're awake while the action is taking place. Popularity isn't a key factor: some of the best opportunities occur in the markets that aren't popular but are fine to trade, as long as they have good liquidity and volatility.

  2. Answer 8-2: D

    Bonds represent loans, while shares represent company ownership. You'd have to buy a great number of them to become an insider. In the United States, for mandatory reporting purposes, corporate insiders are defined as a company's officers and directors and the owners of more than 10% of its equity securities. It's a dangerous misconception to expect the price of a stock to rise if the company makes money. If a company was expected to report a $100 million profit in a quarter but announced a $70 million profit, its shares are likely to take a hit from disappointed holders when earnings are reported.

  3. Answer 8-3: D

    Warren Buffett says that when you buy a stock you become a partner of a manic-depressive fellow he calls Mr. Market. Each day he wants to buy your shares or sell his shares to you. Occasionally, Mr. Market becomes so depressed that he offers you his shares on the cheap—and that's when you should buy. At other times he becomes so manic that he offers a crazy price for your shares—and ...

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