The basics of trading

Before you start trading, it's important to understand the basic concepts. This page explains the most important elements you'll encounter when trading.

Market analysis

There are two ways to look at the market:

Fundamental analysis looks at the underlying value of a company. You analyze financial reports, news, product launches, and market conditions. This is especially useful for long-term investments.

Technical analysis only looks at price movements and patterns in charts. You use historical data to predict where the price is going. This is what daytraders and swingtraders use.

In this tutorial, we focus only on technical analysis. In addition to technical analysis, there are news events that you should keep a close eye on as a day- or swingtrader, such as earnings, economic data from the USA, and the FED interest rate decision. These news events can cause spikes, or sudden, severe price fluctuations, and pose a significant risk to open trades.

Market sentiment

The terms bullish and bearish describe overall market sentiment. Bullish means traders expect prices to rise. Bearish means they expect a decline. This sentiment is primarily determined by:

• Price action: Higher highs and higher lows indicate a bullish trend, lower highs and lower lows indicate a bearish trend.
• Volume: Rising volume with rising prices strengthens bullish sentiment; rising volume with falling prices strengthens bearish sentiment.
• News and events: Positive company news, macro data, or sector trends can make sentiment bullish, while weak data or uncertainty creates bearish pressure.

You also use these terms for setups or candlesticks: a bullish setup supports long entries, a bearish setup supports short entries.

What is a trend?

A trend is the general direction in which the price moves. There are three types of trends:

Uptrend (rising or bullish trend): The price makes higher highs and higher lows. The trend goes up. This is favorable for long trades.

Downtrend (falling or bearish trend): The price makes lower highs and lower lows. The trend goes down. This is favorable for short trades.

Range (sideways market): The price moves between an upper and lower boundary without a clear direction. Also called "consolidation."

"The trend is your friend" is a well-known saying in trading. It's easier to trade with the trend than against it. An uptrend doesn't mean you should always go long, but it does mean that long trades statistically have a better chance of success.

Long vs short

A long position means you buy because you expect the price to rise. Your profit comes when the price moves above your entry. A short position means you sell first (you borrow the shares through your broker, this process is automatic and you don't need to know anything about it) because you expect a decline. Your profit comes when you can buy back at a lower price. To make a profit with daytrading or swingtrading, prices don't necessarily need to rise. You can also make a profit in a falling market, just as you can suffer losses in a rising market.

What is a chart?

A chart (also called a price graph) is a visual representation of how the price of a stock, index, or other financial product develops over time. It's your most important tool as a trader.

On the horizontal axis is time, on the vertical axis is price. By looking at a chart, you can immediately see whether a price is rising, falling, or moving sideways. Charts help you recognize patterns and make decisions.

What is a ticker?

A ticker is the abbreviation used to identify a stock or financial product on the exchange. For example:

• AAPL = Apple
• TSLA = Tesla
• NVDA = Nvidia
• SPY = S&P 500 index

When you want to place a trade, you use the ticker to select the right product. Each ticker is unique and refers to one specific product.

What is a candlestick?

A candlestick is a way to visualize price movements. Each candlestick shows four important prices for a certain period:

• Open: The price at the beginning of the period
• High: The highest price during the period
• Low: The lowest price during the period
• Close: The price at the end of the period

Green candlesticks are bullish and mean the price has risen (close higher than open).
Red candlesticks are bearish and mean the price has fallen (close lower than open).

The body of the candlestick (the thick part) shows the difference between open and close. The wicks (lines above and below the body) show the high and low.

By reading a chart in candlesticks, you can quickly see if there's buying or selling pressure and how volatile the price is.

Next steps

Now that you know the basic concepts, it's time to learn how to read and interpret charts. In the next lesson, you'll learn about timeframes, levels, indicators, and patterns.