Catalog / Investing and Trading Cheatsheet
Investing and Trading Cheatsheet
A quick reference guide to essential concepts, strategies, and tools for investing and trading in financial markets. Covers stocks, bonds, options, and fundamental/technical analysis.
Investment Basics
Asset Classes
Stocks |
Represent ownership in a company. Higher potential returns but also higher risk. |
Bonds |
Debt securities issued by corporations or governments. Generally lower risk than stocks but also lower returns. |
Mutual Funds |
Pooled investment funds managed by professionals. Offer diversification. |
ETFs (Exchange-Traded Funds) |
Similar to mutual funds but trade like stocks on an exchange. Often passively managed and track an index. |
Options |
Contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a specific date. High risk/high reward. |
Real Estate |
Investment in land and buildings. Can provide rental income and appreciation. |
Risk and Return
Risk Tolerance |
Your ability and willingness to lose money in your investments. Determines appropriate asset allocation. |
Diversification |
Spreading investments across different asset classes to reduce risk. |
Time Horizon |
The length of time you plan to invest. Longer time horizons allow for more risk. |
Expected Return |
The anticipated profit or loss on an investment. Higher returns typically come with higher risk. |
Inflation |
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Investment returns should outpace inflation. |
Investment Strategies
Buy and Hold: Buying investments and holding them for the long term, regardless of market fluctuations. |
Value Investing: Identifying undervalued companies and buying their stock. |
Growth Investing: Investing in companies with high growth potential. |
Income Investing: Investing in assets that generate regular income, such as bonds and dividend-paying stocks. |
Trading Strategies
Technical Analysis
Trend Following |
Identifying and trading in the direction of a prevailing trend. |
Day Trading |
Buying and selling securities within the same day, aiming to profit from small price movements. Very high risk. |
Swing Trading |
Holding securities for a few days or weeks to profit from short-term price swings. |
Scalping |
Making numerous trades throughout the day to capture very small profits on each trade. |
Arbitrage |
Exploiting price differences for the same asset in different markets. |
Common Chart Patterns
Head and Shoulders |
A bearish reversal pattern indicating a potential downtrend. |
Double Top/Bottom |
Reversal patterns that suggest a change in the current trend. |
Triangles |
Continuation patterns indicating a period of consolidation before a breakout. |
Flags and Pennants |
Short-term continuation patterns that occur during strong trends. |
Technical Indicators
Moving Averages (MA) |
Used to smooth out price data and identify trends. |
Relative Strength Index (RSI) |
An oscillator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. |
Moving Average Convergence Divergence (MACD) |
A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. |
Bollinger Bands |
Volatility bands placed above and below a moving average. Used to identify potential overbought or oversold conditions. |
Fundamental Analysis
Financial Statements
Income Statement |
Reports a company’s financial performance over a period of time (revenue, expenses, profit/loss). |
Balance Sheet |
A snapshot of a company’s assets, liabilities, and equity at a specific point in time. |
Cash Flow Statement |
Tracks the movement of cash both into and out of a company over a period of time (operating, investing, and financing activities). |
Key Ratios
Price-to-Earnings (P/E) Ratio |
Stock price divided by earnings per share. Indicates how much investors are willing to pay for each dollar of earnings. |
Debt-to-Equity Ratio |
Total debt divided by total equity. Measures a company’s financial leverage. |
Return on Equity (ROE) |
Net income divided by total equity. Measures how efficiently a company is using its equity to generate profits. |
Profit Margin |
Net income divided by revenue. Measures a company’s profitability. |
Economic Indicators
GDP (Gross Domestic Product): The total value of goods and services produced in a country. Indicates economic growth. |
Inflation Rate: The rate at which the general level of prices for goods and services is rising. |
Unemployment Rate: The percentage of the labor force that is unemployed. |
Interest Rates: The cost of borrowing money. Influenced by central banks. |
Options Trading
Basic Option Types
Call Option |
Gives the buyer the right, but not the obligation, to buy an underlying asset at a specific price (strike price) on or before a specific date (expiration date). |
Put Option |
Gives the buyer the right, but not the obligation, to sell an underlying asset at a specific price (strike price) on or before a specific date (expiration date). |
Option Strategies
Covered Call |
Selling a call option on a stock you already own. Generates income but limits upside potential. |
Protective Put |
Buying a put option on a stock you own. Protects against downside risk. |
Straddle |
Buying both a call and a put option with the same strike price and expiration date. Profitable if the underlying asset’s price moves significantly in either direction. |
Strangle |
Buying a call and a put option with different strike prices and the same expiration date. Similar to a straddle but less expensive and requires a larger price movement to be profitable. |
Key Option Terms
Strike Price: The price at which the underlying asset can be bought (call) or sold (put). |
Expiration Date: The date on which the option contract expires. |
Premium: The price paid for the option contract. |
In the Money (ITM): A call option is ITM when the underlying asset’s price is above the strike price. A put option is ITM when the underlying asset’s price is below the strike price. |
At the Money (ATM): The strike price is equal to the market price of the underlying asset. |
Out of the Money (OTM): A call option is OTM when the underlying asset’s price is below the strike price. A put option is OTM when the underlying asset’s price is above the strike price. |