What is trading and how to get started ?

What is trading and how to get started ?

What is trading : To better comprehend our function as traders, we must first consider what trading is all about.

A trader tries to make a profit by entering into trades or betting on price fluctuations, and by properly projecting the future price trend.

We’ll now take a closer look at the various components of this definition.

Trading allows you to gamble on both increasing and falling prices, allowing you to benefit even if the stock market or another financial market falls.

The profit potential

If a trader feels that the stock of Apple or the exchange rate between the EUR and the USD will appreciate as a result of his or her analysis, he or she can buy the shares or the related currencies now and sell them at a higher price later to profit.

Even if the trader thinks prices will go down, he or she might take this into account in his or her trading strategy and start a so-called sell (short) transaction, which benefits the trader when the values of the underlying assets go down.

Naturally, there is always the possibility that the price trend will not meet the trader’s expectations and the deal will have to be closed at a loss.

The profit potential
Figure 1: Left: EUR-USD chart. A trader can make profits by betting on rising rates when the exchange rate rises. Right: USD exchange rate. If a trader enters a sell trade at a right time, he/she can make profits when the rate drops.

Decision-making

Traders can use a variety of approaches and tools to analyze price changes in price charts and stock prices in order to make buying or selling choices.

The fundamental data trader makes trading decisions based on company or economic data, while the so-called technical trader solely looks at share prices and concentrates on specific patterns and price formations.

It’s tough to say that one method of decision-making or analysis is better than the other. Rather, it is critical that each trader chooses the sort of trading that best suits him or her. This book focuses solely on understanding and applying technical analysis ideas.

Short-term vs long-term trading

Figure 2: Daily opening times of the most important international finance markets. Timey may change during DST.
Figure 2: Daily opening times of the most important international finance markets. Timey may change during DST.

The investment horizon is a crucial consideration that influences the type of trading. We usually divide day trading and swing trading into two categories.

Short-term trading involves the trader opening and closing individual trades in a matter of minutes or hours. These kinds of deals are called “day trades” because the period of speculation is usually only one day.

Swing trading refers to when a position is held for a few days, weeks, or even months.

These two types of trading have fundamentally distinct application possibilities and criteria for traders.

Due to time constraints, day trading is frequently less ideal for employed people, as it is important to keep an eye on price charts during the market’s operating hours. When the Frankfurt Stock Exchange opens at 9.00 a.m., most Germans are likely at work and unable to actively track price fluctuations. A German day trader, on the other hand, may switch to other stock markets after work and actively trade on the American or Asian stock exchanges.

Most people find that limiting themselves to medium-to longer-term swing trading is a lot more practicable because the time commitment is significantly lower. Swing trading is typically a better option for working individuals because they do not have to sit in front of a computer for long periods of time and the decision-making process is slower.

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Bottom Line : Trading allows you to gamble on increasing and falling prices, allowing you to benefit even if the stock market or another financial market falls. A trader tries to make a profit by entering into trades or betting on price fluctuations, and by projecting the future price trend. Traders can use a variety of approaches and tools to analyze price changes in price charts and stock prices. Day trading involves the trader opening and closing individual trades in a matter of minutes or hours. Swing trading refers to when a position is held for a few days, weeks, or even months. Due to time constraints, day trading is frequently less ideal for employed people as it is important to keep an eye on price charts during the market’s operating hours.

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