Introduction
Trading is a touchy subject. There are a million ways to earn in the various markets. This section will touch on a general bit of information that applies across the board.
What Is Trading?
Trading is basically trying to earn money out of a particular market. You place a dollar value on a currency, instrument or company and speculate on whether it will go up or down. That’s the bare-bones basics.
Analysis
You never jump into trading blindly. You should always look at the markets before going in - look before you leap. There are three basic types of analysis.
- Fundamental.
- Technical.
- Sentimental.
Fundamental
Fundamental analysis takes into consideration the various economic factors of a country and - in the case of stocks - how it affects the company or commodity. This is done before buying or selling (going long or short).
Some persons that do fundamental analysis don’t touch technical analysis at all.
Technical
This involves entirely looking at the charts. Whether you look at the bare chart (naked trading), use the stock indicators or throw on a lot of custom indicators, the trades are taken based on price and how it interacts with the indicators (if used).
Some persons that do technical analysis do not look at fundamentals at all.
Sentiment
Market sentiment can be seen in the actions on the chart, usually during or after news. A major push in one direction or another can be seen as people having a belief in one direction over another.
Forex Example
The Euro / US Dollar pair is the most popular (EURUSD) and shows two currencies.
- Placing a buy (going long) on EURUSD says that you think EUR is going to strengthen over USD.
- Placing a sell (going short) on EURUSD says that you think USD will strengthen over EUR.
The same principle applies to anything and everything - from BTC to coffee. Do you think the price of the item will go up or down? That’s the bare-bones basics.
Strategies
The most basic strategy is an MA cross. You use a fast and slow moving average on the chart and buy when the fast is on top, then sell when the slow is on top.
Let’s say you have a 5 MA and a 10 MA. The 5 MA is the faster one (lower number) and the 10MA is the slower one (higher number). If the 5 MA has crossed and is above the 10 MA then price is likely going up and you can look to buy. If the 10 MA has crossed and is above the 5 MA, then price is likely going down and you can look to sell.
Above is a very simple MA cross strategy and should not be looked at alone. You should always have multiple confirmations and something other than just an MA cross before entry to any trade.
Whatever strategy you find, always ensure it matches your style and circumstances. You cannot do scalping (short term trading) if you have a day job and aren’t able to sit and watch the charts. In the same breath, maybe scalping resonates with you more and you’re unable to do longer term trading (swing trading).
Whatever it is - find a balance and stick to it. Once you have it down, you can tweak it as needed.
Quitting
The hard truth is that trading isn’t for everyone. Some persons have 50/50 wins/losses while some persons have far more losses than wins. Most persons that get into trading fail for some reason or another, and it should be looked at as a full-time job based on how fast things can go. If you ever traded crypto, you’ll know what I mean. Gold as well can be unforgiving if you get things wrong.
If you find that you’re losing more than you’re winning, either take a step back to reevaluate, or get out with what losses you’ve had.
Trading isn’t for everyone. Don’t get suckered into constantly giving away your money.