What is trading?
Trading means buying and selling assets to profit from price changes over days, hours, or even minutes.
You buy when you expect the price to rise (going long) or sell first when you expect it to fall (going short), then close the position later. The difference between your entry and exit price, minus fees, is your profit or loss.
Trading vs. investing
| Trading | Investing | |
|---|---|---|
| Time frame | Minutes to weeks | Years to decades |
| Profit source | Price swings | Growth, dividends, interest |
| Effort | High: watching charts, managing risk | Low to moderate |
| Risk of loss | High, especially with leverage | Lower when diversified |
Markets and trading styles
Stocks
Shares of companies. Trade mostly during exchange hours.
Forex
Currency pairs like EUR/USD. Open 24 hours on weekdays, heavily leveraged.
Crypto
Bitcoin and others. Open 24/7, very volatile.
Commodities
Gold, oil, wheat. Often traded through futures or CFDs.
Indices
Baskets such as the S&P 500, traded as one product.
Futures & options
Derivatives. Powerful but advanced; learn them last.
Styles by holding time
| Style | Holds for | Charts used |
|---|---|---|
| Scalping | Seconds to minutes | 1m, 5m |
| Day trading | Within one day | 5m, 15m, 1h |
| Swing trading | Days to weeks | 4h, daily |
| Position trading | Months or more | Daily, weekly |
Key terms to know first
- Bid / ask: the highest price buyers offer and the lowest price sellers accept. The gap is the spread, a cost you pay on every trade.
- Leverage: borrowing to control a bigger position. It magnifies gains and losses.
- Pip / tick: the smallest standard price move.
- Liquidity: how easily you can buy or sell without moving the price.
Order types
- Market order
- Buy or sell immediately at the best available price. Fast, but the price can slip in a fast market.
- Limit order
- Buy at or below, or sell at or above, a price you choose. You control the price but may not get filled.
- Stop-loss
- Closes your trade automatically if price hits a level against you. This is your safety net: set one on every trade.
- Take-profit
- Closes your trade automatically at your target.
- Stop-limit
- A stop that turns into a limit order, so you control the fill price but may not exit.
- Trailing stop
- A stop that follows the price at a set distance, locking in profit as the trade moves your way.
Chart basics
A chart is price (vertical) plotted against time (horizontal). Everything else is built on that.
Chart types
- Line chart: connects closing prices. Clean, good for the big picture.
- Bar (OHLC) chart: shows open, high, low, close as vertical bars.
- Candlestick chart: same data as OHLC, but easier to read at a glance. This is the standard.
Time frames
Each candle represents one time unit: 1 minute, 1 hour, 1 day, and so on. Always start on a higher time frame (daily or 4h) to see the main trend, then zoom into a lower one (1h or 15m) to time your entry. This is called multi-time-frame analysis.
Scales
- Linear: equal dollar distances look equal. Fine for short periods.
- Logarithmic: equal percentage moves look equal. Better for long periods and fast-growing assets.
How to read a candlestick
Each candle tells four facts about one time period: where price opened, closed, and its highest and lowest points.
- Green (or hollow) candle: price closed higher than it opened. Buyers won.
- Red (or filled) candle: price closed lower than it opened. Sellers won.
- Long body: strong conviction. Short body: indecision.
- Wicks (shadows): price went there but got rejected. A long upper wick means sellers pushed price back down.
Candlestick patterns
Patterns show a shift in the buyer–seller battle. They work best at support or resistance and with a trend to reverse, not in the middle of nowhere.
Doji
Open and close nearly equal. Indecision; a possible turning point after a strong move.
Hammer
Small body, long lower wick, after a drop. Sellers pushed down but buyers fought back. Bullish.
Shooting star
Small body, long upper wick, after a rise. Buyers were rejected. Bearish.
Bullish engulfing
A big green candle fully covers the previous red one. Bullish reversal.
Bearish engulfing
A big red candle fully covers the previous green one. Bearish reversal.
Morning / evening star
Three candles: big move, small indecisive candle, big move the other way. Morning is bullish, evening is bearish.
Marubozu
A full body with almost no wicks. Strong, one-sided pressure in that direction.
Inside bar
A candle contained within the prior candle’s range. Pause before a breakout.
Support and resistance
The most important concept in chart reading.
- Support: a price zone where falling price tends to stop and bounce, because buyers step in.
- Resistance: a price zone where rising price tends to stall, because sellers step in.
How to use it
- Mark zones, not exact lines. Price touches a area, so draw a band.
- The more times a level held, and the higher the time frame, the stronger it is.
- Role reversal: when resistance breaks, it often becomes new support, and vice versa.
- Be wary of a false breakout: price pokes through, then snaps back. Wait for a candle close beyond the level.
Trends
Uptrend
Higher highs and higher lows. Look for buys on pullbacks.
Downtrend
Lower highs and lower lows. Look for sells on bounces.
Range
Price moves sideways between support and resistance. Buy low, sell high within the box, or wait for a breakout.
Trendlines and channels
Draw a trendline under the lows in an uptrend (or over the highs in a downtrend) using at least two, ideally three, touches. A parallel line on the other side makes a channel. A clean close through the trendline is an early warning that the trend may be changing.
Chart patterns
Bigger shapes formed by many candles. Each one has a trigger (the breakout), a stop (the other side of the pattern) and a target (often the pattern’s height projected from the breakout).
| Pattern | Type | What it looks like |
|---|---|---|
| Head and shoulders | Reversal (bearish) | Three peaks, the middle one highest. Breaks below the “neckline.” Inverse version is bullish. |
| Double top / bottom | Reversal | Price fails twice at the same level, forming an M (top) or W (bottom). |
| Triangles | Continuation or either | Highs and lows squeeze together. Trade the breakout direction. |
| Flag / pennant | Continuation | A sharp move, a short tight pause, then the move resumes. |
| Wedge | Reversal | Both lines slope the same way. A rising wedge is bearish; a falling wedge is bullish. |
| Cup and handle | Continuation (bullish) | A rounded bottom, a small dip, then a breakout. |
Volume
Volume is how much was traded in each period, usually shown as bars under the chart. It tells you how much conviction is behind a move.
- A breakout on high volume is more trustworthy than one on low volume.
- A rising price with falling volume suggests the move is running out of steam.
- A huge-volume candle near a high or low can signal exhaustion and a reversal.
Indicators
Indicators are math applied to price. They don’t predict anything; they help you see trend, momentum, and volatility. Use two or three at most and make sure each shows something different.
Moving averages (SMA / EMA)
The average price over N periods. Price above the 200-day average is a long-term uptrend. A faster average crossing above a slower one is a “golden cross” (bullish); the reverse is a “death cross.” EMA reacts faster than SMA.
RSI
Momentum from 0 to 100. Above 70 is “overbought,” below 30 is “oversold.” In strong trends it can stay extreme for a long time, so don’t sell just because it’s above 70. Look for divergence: price makes a new high but RSI doesn’t.
MACD
Two lines and a histogram. When the MACD line crosses above the signal line, momentum is turning up. Crosses below mean the opposite. Works best in trends.
Bollinger Bands
A moving average with bands two standard deviations away. Bands tighten before big moves (a “squeeze”) and widen during them.
ATR
Average True Range measures typical movement. Great for setting stop distances: for example, a stop 1.5×ATR away.
Fibonacci retracement
Levels such as 38.2%, 50%, and 61.8% where pullbacks often pause within a trend. Treat them as zones to watch, not magic.
Risk management
This matters more than any pattern or indicator. Survive first, profit second.
- Risk 1% or less of your account per trade. Ten losses in a row then costs only about 10%.
- Always use a stop-loss, placed where your idea is proven wrong, not at a random distance.
- Risk-to-reward (R:R): aim for at least 1:2. Risking $10 to make $20 means you can be right only 40% of the time and still profit.
- Size your position from the stop distance, not from gut feeling.
- Limit leverage. High leverage is how most accounts are wiped out.
Position size calculator
Psychology
Most losses come from behavior, not analysis. Watch for these:
FOMO
Chasing a move that has already happened. Wait for your setup.
Revenge trading
Trying to win back a loss right away. After a bad trade, step away.
Overtrading
Trading from boredom. No setup means no trade.
Moving your stop
Widening a stop because “it will come back.” It often doesn’t.
Cutting winners early
Fear makes you grab small profits while letting losers run. Do the opposite.
Overconfidence
A winning streak isn’t skill proof. Keep your size the same.
Common strategies
Trend following
Identify the trend on a higher time frame, wait for a pullback to support or a moving average, and enter in the trend’s direction with a stop below the pullback low.
Breakout trading
Enter when price closes beyond a well-tested range or level on rising volume. Stop goes back inside the range.
Range / mean reversion
In a sideways market, buy near support and sell near resistance. Exit quickly if the range breaks.
Reversal trading
Trade a candle pattern at a major level with RSI divergence as confirmation. Higher risk; needs tight stops.
News trading
Trading around events such as earnings or interest-rate decisions. Spreads widen and prices jump, so it is not for beginners.
Build your trading plan
Write these down before you risk real money:
- Which markets and time frames you trade
- Your exact entry conditions (the checklist)
- Where stops and targets go
- Risk per trade and maximum daily or weekly loss
- When you do not trade (news, tired, after three losses)
- How you review trades each week
Suggested learning path
- Learn the basics, order types, and candlesticks (above).
- Practice marking support, resistance, and trends on past charts.
- Open a demo account and paper trade at least 50 trades with a journal.
- Go live with a very small account and the 1% rule.
- Review weekly; change one thing at a time.