An adequate understanding of myriad concepts would be imperative in order to obtain a modest level of skill and understanding of the workings of financial markets. Some people are better at investing than others, however no one is born with the innate ability to pick stocks or manage money. Investing requires learnable skills. Abell, Koppel, and Johnson agree that the three criteria for success in the markets is learning “where to trade, how to trade, and what to trade” (37). Essentially, an examination geared toward preparing individuals to trade securities online without the supervision of a broker, would cover these three, broad, facets. To take a closer, in depth look at the kind of education that would be required to pass an exam like this, it is important to understand the three types of market analysis: fundamental, technical, and sentimental. Dr. Melvin Pasternak, the editor of www.streetauthority.com, explains that fundamental indicators have to do primarily with “a company's sales and earnings outlook.” This is almost the exact opposite of the technical analysis, which is the evaluation of price fluctuations in securities’ values determined by studying charts. In an entirely separate category is sentimental analysis, which involves understanding the psychology of market participants. Clearly, market analysis is a complex and diverse arena that, without training, would never make sense to a beginning trader. To further complicate the process of understanding what information matters and what doesn’t in the financial marketplace, the Internet has introduced an entirely new means of disseminating data whereby anyone with an Internet connection can publish information concerning any subject, information which is in most cases unverifiable.
By being required to pass a test that certifies competency in a diverse range of investing principles, new and old traders alike will be much better prepared for business in the financial marketplace. Just because an investor has passed the certification examination, however, does not guarantee that they will find ultimate success. Several skills in particular develop only with time and experience with trading. Most importantly is a cold, rational view of the market. When investors become caught up in the emotions of a large loss or gain, they many times act in irrational ways and ultimately make the situation worse for themselves. For example, imagine that a first time investor spends his entire life savings buying stock in Pfizer, a major US drug company. He wakes up the following morning to find that Pfizer has announced the failure of its highly anticipated heart drug, and suddenly this new investor is out 13% of his investment. Generally, a person in this situation will lose some of their sanity, and feel that they have to make up for their loss somehow as they begin buying random, highly volatile stocks left and right, all because the speed of the Internet allows them to. In the end, this investor is out of 20% of his investment, significantly worse than before. It is imperative that an investor be able to keep his sanity, no matter what situation he may find himself in. Developing a cold view of the market is essential to overall success and rational decision making. Essentially, some investors are simply not suited to online investing, and should leave the management of their money to someone else.
Works Cited
Abell, Howard, Robert Koppel, and Ken Johnson. The Sixth Market. Chicago: Dearborn Trade, 2000.
Carreon, Charles. "Mutual Funds." 401KInvestor.Net: Charles Carreon's Simple Guide To Investing. 9 Apr 2007 .
Collins, Victoria. InvestBeyond.com. Chicago: Dearborn, 2000.
Goodchild, John, and Clive Callow. Double Takes. Chichester, England: John Wiley and Sons Ltd, 2000.
Masonson, Leslie N. Day Trading on the Edge. New York: Amacom, 2001.
Pasternak, Melvin. "Technicals versus Fundamentals." Street Authority. 18 Apr 2007 http://www.streetauthority.com/terms/t/technicals.as>.
Seeto, Brandon C W. The Psychology of Electronic Trading. Singapore: John Wiley and Sons (Asia) Pte Ltd, 2004.
Thomsett, Michael C. Mastering Online Investing. Chicago: Financial Publishing, Inc., 2000.
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