Trading Fundamentals

Trading is the act of buying and selling financial instruments (stocks, futures, forex, options) with the goal of generating profits. Unlike investing, which focuses on long-term growth, trading typically involves shorter time horizons and aims to capitalize on price movements. 

Markets operate through supply and demand. When more people want to buy (demand exceeds supply), prices rise. When more people want to sell (supply exceeds demand), prices fall. Understanding this fundamental principle is crucial for all trading decisions. 

Going 'Long' means buying an asset with the expectation it will increase in value. Going 'Short' means selling an asset you don't own (borrowed) with the expectation its price will decrease, allowing you to buy it back cheaper and profit from the difference. 

The 'Bid' is the highest price buyers are willing to pay. The 'Ask' is the lowest price sellers are willing to accept. The difference between them is the 'Spread.' Lower spreads mean better liquidity and lower trading costs. 

Ultra-fast trading focusing on small price movements. Requires intense focus, quick decision-making, and the ability to execute many trades per day. Not for beginners.

Time Commitment: Full-time during market hours

All positions are closed by end of day. Focuses on intraday price movements using technical analysis. Requires active monitoring and quick decision-making.

Time Commitment: Several hours daily

Captures larger price moves over multiple days. Allows for part-time trading as you don't need constant monitoring. Combines technical and fundamental analysis.

Time Commitment: 1-2 hours daily

Long-term approach focused on major trends and fundamentals. Requires patience and strong conviction. Less affected by short-term volatility.

Time Commitment: Few hours weekly

Buying and selling shares of publicly traded companies. Stock traders can trade individual stocks, ETFs (Exchange Traded Funds), or index funds. Popular for day trading due to liquidity and volatility.

Key Characteristics: High liquidity during market hours, regulated by SEC, margin available, pattern day trading rules apply (need $25k for unlimited day trades in US).

Best For: Beginners to advanced, day traders and swing traders.

Trading currency pairs (e.g., EUR/USD, GBP/JPY). The largest and most liquid market globally, open 24/5. Traders profit from fluctuations in exchange rates between currencies.

Key Characteristics: Extremely high liquidity, 24-hour market, high leverage available (use cautiously), lower capital requirements.

Best For: Scalpers, day traders, those who prefer 24-hour access.

Contracts to buy or sell an asset at a predetermined price on a future date. Popular futures include ES (E-mini S&P 500), NQ (Nasdaq), CL (Crude Oil), and GC (Gold). Futures trade nearly 24/5.

Key Characteristics: High leverage, near 24-hour trading, requires futures account, margin requirements, tick-based pricing.

Best For: Experienced traders, day traders, those seeking leverage and extended hours.

Contracts that give the right (but not obligation) to buy or sell an asset at a specific price by a certain date. Options can be used for speculation, hedging, or income generation (selling options).

Key Characteristics: Defined risk (buying), complex strategies available, time decay (theta), Greeks (delta, gamma, vega), requires options approval.

Best For: Advanced traders, those seeking defined risk, income traders.

Digital currencies like Bitcoin (BTC), Ethereum (ETH), and others. Crypto markets operate 24/7 and are known for extreme volatility. 

Key Characteristics: 24/7 trading, high volatility, unregulated (in most jurisdictions), digital wallets required, newer market.

Best For: Risk-tolerant traders, those comfortable with technology, 24/7 traders.

Raw materials like gold, silver, oil, natural gas, agricultural products. Traded via futures contracts or commodity ETFs. Often used as inflation hedges or portfolio diversification.

Key Characteristics: Influenced by global supply/demand, geopolitical events, weather (for agriculture), storage costs, seasonal patterns.

Best For: Diversifiers, macro traders, those interested in fundamental analysis.

Analyzing charts, patterns, and market conditions in real-time and making trade decisions manually based on your strategy and experience.

Adaptable to market conditions, uses intuition and experience, no coding required.

Emotionally demanding, time-intensive, prone to psychological biases, harder to back test.

 Using computer programs (algorithms) to automatically execute trades based on predefined rules and conditions. Also called 'algo trading' or 'bot trading.'

Removes emotions, executes faster than humans, can monitor multiple markets 24/7, back testable.

Requires programming skills, can fail during unexpected events, over-optimization risk, requires constant monitoring.

Following and automatically copying the trades of experienced traders on trading platforms or prop firm / Live copy trading systems.

Learn from experienced traders, less time required, can diversify by copying multiple traders.

Fees can be high, you don't control the trades, past performance doesn't guarantee future results, still requires capital.

Making trade decisions based on economic data, company financials, earnings reports, news events, and macroeconomic factors rather than technical charts.

Deeper market understanding, good for position trading, less screen time.

Time-consuming research, slower execution, markets can be 'irrational' in short term.

Using price charts, indicators (RSI, MACD, moving averages), patterns (head & shoulders, triangles), and support/resistance levels to predict future price movements.

Works on any market/timeframe, visual and systematic, widely studied and used.

Can be subjective, indicators lag price, false signals common, requires practice.

Proprietary trading firms (prop firms) are companies that provide capital to traders who pass evaluation challenges. Instead of trading your own money, you trade the firm's capital and split the profits (typically 70-90% to you, 10-30% to the firm). 

You pay a fee (usually $100-$500) to attempt a trading challenge with specific rules: profit target, max drawdown limit, daily loss limit, and minimum trading days. Challenges typically last 30-60 days. 

 If you pass the challenge by hitting the profit target without violating rules, you receive a funded account (typically $10k-$200k depending on challenge level). 

 You trade the funded account and keep 70-90% of profits. Some firms have monthly withdrawal schedules, others allow on-demand withdrawals. You're trading the firm's capital, so your personal risk is limited to the challenge fee.

✓Trade large capital without risking your own money

✓Limited financial risk (only challenge fee at stake)

✓No PDT (Pattern Day Trading) rule restrictions

✓Learn discipline through strict rules

✓Potential for significant income with firm capital

✗Challenge fees can add up if you fail multiple times

✗Strict rules (max drawdown, daily loss limits) can be stressful

✗Some firms have hidden rules or poor payout reliability

✗Profit splits mean you don't keep 100% of gains

✗Pressure to perform within evaluation timeframes

→Research the firm thoroughly - check reviews, payout proof, BBB ratings

→Read ALL the rules carefully before purchasing a challenge

→Don't rush - take your time during the evaluation period

→Focus on consistency over massive profits during challenges

→Be wary of firms with unrealistic promises or suspicious terms

→Consider starting with smaller account sizes to prove yourself first

This is the golden rule. If you risk 2% per trade, you can survive 50 consecutive losses before your account is depleted. This gives you room to learn and develop consistency. 

Every trade must have a predefined exit point if the market moves against you. Never move your stop loss further away from your entry to 'give the trade more room.' That's a recipe for disaster. 

For every dollar you risk, aim to make at least two dollars. This means you can be wrong 60% of the time and still be profitable.

Leverage magnifies both gains and losses. Many beginners blow their accounts by using too much leverage. Start with low or no leverage until you prove consistent profitability. 

Define your entry criteria, exit criteria (both profit and loss), position sizing, and trading hours BEFORE you enter any trade. Trading without a plan is gambling. 

Document every trade: entry/exit, reasoning, emotions, mistakes. This is how you identify patterns in your behavior and improve over time. StatTradES helps you do this. 

Borrowing capital to increase position size. Can amplify both gains AND losses. Use with extreme caution. 

A predetermined price level where you exit a losing trade to limit losses. Essential for risk management. 

A predetermined price level where you exit a winning trade to lock in profits. 

The relationship between potential loss (risk) and potential gain (reward) in a trade. Aim for at least 1:2 (risk $1 to make $2). 

The amount of capital allocated to a single trade. Proper sizing is crucial for surviving losing streaks. 

The degree of price fluctuation. Higher volatility = larger price swings = more opportunity but more risk. 

How easily an asset can be bought or sold without affecting its price. High liquidity = easier trading. 

The smallest price increment in a market. Different markets use different terms for their minimum price movements. 

When your account falls below the minimum required balance for leveraged positions. Broker may close your positions. 

The decline from a peak to a trough in your account balance. Managing drawdowns is critical for longevity. 

× Trading without a plan or strategy

× Risking too much capital on a single trade

× Not using stop losses or moving them to avoid losses

× Revenge trading after a loss to 'get back' at the market

× Overtrading due to boredom or excitement

× Following tips from social media without understanding

× Ignoring risk management because you're 'confident'

× Not learning from losing trades

× Trading with money you can't afford to lose

× Expecting to get rich quick

Spend at least 2-3 months learning before risking real money. Read books, watch courses, study successful traders. Understanding trading psychology is as important as technical skills. 

Practice your strategy in a simulated environment. Most brokers offer paper trading accounts. Trade like it's real money. Track your performance honestly. 

When you go live, start with the minimum position size your broker allows. Even if you have $10,000, trade as if you have $1,000. Prove consistency first. 

Don't try to trade stocks, forex, and crypto simultaneously. Master one market and one strategy before expanding. Specialization leads to expertise. 

Use StatTradES or another journal to meticulously track every trade. Review your performance weekly and monthly. Data reveals truth that emotions obscure. 

Only increase your position size after consistent profitability over 3+ months. Growing too fast is a common way profitable traders blow up. 

It takes months (often years) of dedicated practice, study, and self-reflection to become consistently profitable. Most successful traders have blown up at least one account before they figured it out.

Psychology is 80% of trading success. You can have the best strategy in the world, but if you can't control your emotions—greed, fear, impatience—you will fail. Use StatTradES to track not just your trades, but your emotional state and decision-making patterns.

Focus on the process, not the profit. Instead of obsessing over how much money you're making, focus on executing your strategy perfectly. Follow your rules. If you do that consistently, profits will follow naturally.

Remember: The goal isn't to never lose. The goal is to lose small and win big, consistently, over time.