Trading Explained For Complete Beginners - In 17 Minutes

Most people think that trading is complicated, charts and financial indicators and jargon, and it scares them away. But trading is actually one of the simplest ideas in the world. And in the next few minutes in this video, I'm going to show you exactly how trading works from the ground up. By the end of this video, you'll understand what traders actually do, how markets move and why most people lose money. But once you see it explained properly, it's actually surprisingly simple. So we're going to start with what trading actually is. Trading simply means buying something with the intention of selling it later at a higher price. So if you buy a stock at $100 and then the price of that stock rises and you decide to sell it at $110, then you come away with a $10 profit. Now the same happens in the Forex market or the currency markets. If you're buying the British pound against the US dollar and the same thing happens and you buy at one price and you get out at a higher price and you sell back, then what you're doing is you're making a profit on those incremental changes in the currency market. A lot of people think, well, it's going to take you ages to make any money in a currency market because the moves are so small every day, but that's where they're wrong. We're not making money in massive moves in the market. We're actually making moves in tiny incremental decimal point moves in the market. So for instance, if you go to the airport and you go to the exchange booth at the airport, you'll see that they're presenting a price to you. Uh, but what you'll also see is a few more digits on the right hand side. So it will say something like the Euro is 1.3582. Okay. Now when you return from the holiday, it might be 1.36 or 1.3592 right? But that doesn't matter to us as traders because what we're looking at is the last decimal point. We're actually making money on these incremental changes right here. And we are betting a proportion of our total trading account to these numbers. Okay. So as a currency changes, maybe 0.1 or 0.2 or 0.5 of a percentage each day, we can still make money by betting, say 1% or 2% of our total account balance against these two numbers here. And now you can start to see that there there's infinite opportunity because the financial markets are about $5.3 trillion in volume traded every single day. They're gigantic. So what trading is is speculation on price movement. Traders don't care what the asset is. They care whether the price will move up or down and that's it. Imagine buying concert tickets before they sell out and then selling them later when the demand increases. A profitable trader isn't someone who predicts the market better than everyone else. It's someone who develops an edge. Now an edge is something that I'm going to go over in this video briefly, but my definition of an edge is expectancy, knowing your expectancy, having discipline, having a game plan, a set of rules, and then having the emotional control to execute on that plan consistently. Now the difference between trading versus investing, this is really important because beginners confuse the two. Investing is longterm where you you're buying assets expected to grow over the years. For example, things like index funds or property retirement accounts and what trading is. Trading is shorter time horizons, focus on price movements rather than fundamentals. Trades can last minutes or hours, days or weeks, whereas an investor might buy Apple stock and hold it for 10 years. A trader is using their skill to predict an incremental price movement and then speculating on that price movement over a short period of time. They want to get in and out and make money in the short term. So the activity of an investor over a long period of time, investors looking to just get in and the stock go up. Whereas a trader is looking to make money like this on the way up. Now before we actually talk about how traders make money, you first need to understand what actually moves markets. And in a moment I'll show you what exactly what a real trade looks like. But let's talk about how markets move. So the reason markets move is because there's buyers versus sellers. That's the foundation of price action. Price moves because of supply and demand. If more people want to buy than sell, then price rises. If more people want to sell than buy, then price falls. So for an example, in an auction, someone offers a hundred pounds, someone else offers 105 pounds and another offers 110 pounds. The price moves up and without getting too bogged down in mathematics, a simple supply and demand diagram here is if demand increases moving this way, okay, then the price gets higher, right? Now if supply increases and goes this way, then price goes back down and where supply and demand meet, that's what we call equilibrium. But if demand goes up like we have here and supply goes down and goes backwards to here, that's when the price is at its highest. Basically all supply and demand is is buyers versus sellers bidding on the best price at any single time. And if you imagine in the Forex market, this is going on at incremental levels across the globe, across every currency, every single second, which is quite difficult to comprehend, but all you need to understand is there's tons of opportunity. Now when you add on top of this, the fact that there are the different participants like hedge funds and institutions and retail traders, and you have to understand that retail traders are really tiny compared to these big institutions that actually move the majority of the markets. And the beautiful thing is you don't have to understand any of this. Trading looks complicated, but it's not. You don't need to understand economics to understand trading. You just have to understand a few simple things. The first thing is charts. So this is where beginners usually feel overwhelmed. So what you want to do is you want to start simple. A chart is simply a visual representation of price movement over time. The vertical axis up here is the price and the horizontal axis is time. Now, depending on what chart you're looking at, if this is the daily chart, then each of these candlestick sessions represents one day. Okay? So each of these is one day. If this is the hourly chart, then each of these candlesticks represents one hour and each of the candlesticks tells us a story of what's happened during that session. And there's four pieces of information that you need to know. So this green candle here, we have an open, a close, a high and a low. Okay? So this is the open. This is the close. This is the high. This is the low on a red candle. It's the same thing, except it just means that the bearish candle or the downward candle where we had a downward movement session, okay, means that the close is down here and we opened higher than we closed. So we have the open and then we have the high and then we have the low and then we have the close. So this is the open. This is the close. Exact same information, just the open and the close is different because a green candle means we closed higher than we opened and a red candle means we closed lower than we opened. Now, if you see candlesticks like this, for instance, it's still the same information. You still got the high here, the low here, we've got the open here and the close here. And on this red candle, we still got the high here, the low here, the open here and the close here. And the reason candles form in different shapes is because they tell us a story. So if this is a downward move, what we've seen here during this session, let's just say this was a daily session during the day price pushed up and then it got pushed down and we closed right down here. Okay. Which can represent a bearish pressure, which means we're likely to push down following that candle. Same on the green. If this was one day, what happened here is the price pushed down and then the bulls pushed up and we had a rejection to the downside, which means on the next day we're likely to see a move up because it tells us a story. Now an important concept that you need to grasp here is markets move in patterns and trends. In fact, all trading is is pattern recognition with a set of rules applied to it and then some discipline to trade those rules. And these patterns happen frequently. There's tons of these patterns going on every day and you can just pinpoint one pattern and you just go and trade that with military precision. Okay. So let's take a look at what a trade actually looks like. Now I use a four step process called IPDE. When I'm looking at a trade setup, I use an IPDE process, which stands for identify, predict, decide, execute. And that just keeps me very objective in these subjective markets. Now the purpose of the eye is to form a bias or a thesis, basically looking at the market and seeing what it's doing overall, what it's done recently, what it's likely to do next. And then the prediction is how it's likely to go there. Okay. How it's likely to move. So first of all, you open up a chart and you might look at the pound dollar and you say, okay, I think this is going to go up. Now when markets move up, they either go straight up or they have a pullback and then they go up. So the next step in the IPDE is decide. And this is where you're looking at your setup, where, what setups do you have? What set of rules do you have that you can pull out of your trading toolbox that will allow you to get involved here or here so you can catch the straight move up or the pullback. And once the rules of these are met, this is where you have rules for these setups. Once the rules for those are met, then you look at getting your entry criteria met and then you execute the trade, which is E execute. So you're basically deciding the direction by yourself. You're choosing an entry point, you're setting your risk, you're setting your target and then you execute the trade. So let's just say on the pound dollar here, you're expecting the price to move up and the current price is 1.2500. Remember, we're looking at these last two decimal points. This is going to be one pip. This is going to be 10 pips and those tiny little movements is how we're going to make the money. And we're going to predict that the market's going to go up and we're going to set a profit target at one, two, five, 20. So one, two, five, 20. Now let's just say we execute our trade. The market pushes up, we trigger our 1.2520 and we take 20 pips off the table. We bank that and the amount that you earn on that trade will depend on how many pounds or dollars or euros you bet on every single one of these pips. So if you bet one pound per pip, you'd walk away with 20 pips. If you bet 10 pound per pip, you'd wake, walk away with 200 pounds. Now let's talk about risk versus reward. Now risk reward is going to be a really important part of your trading plan because a lot of traders, when they go into trading, they think about being right a lot and they want a high strike rate, a high win rate. When in actual fact, another massive component to your overall performance as a trader or your profitability as a trader is going to come down to your reward to risk profile. And the higher the reward to risk profile, actually the lower the strike rate. Now I'm going to show you a chart in a moment that's going to give you a real good reference on all this stuff. But the way risk reward works is how much you're betting or risking in your account and how much you're gaining on any one trade. So for instance, if you're entering here and your stop loss is here where you're going to accept that you're wrong and your target's here, this is about a two to one. Okay? So this is a two to one reward to risk profile. If you're entering here and your stop loss is here and you're buying and your target's here, this is more kind of a one to one. Now if you're selling an instrument or a currency and this is your risk and this is your reward, this might be a five to one, which means that when you're right, you're going to win five times the amount that you lose when you're wrong. So if you've risked 1% of your account balance here, this means that this is going to be 5%. If you've risked 2% of your account balance here, this is going to be 2%. And if you've risked 1% of your account balance here, this is going to be 2% right now. If your trade setups look like this, your strike rate will be lower. Okay? If your trade setups look like this middle one, your strike rate will be a bit higher. And actually if you look at this diagram here that I've put on the screen, you're going to see that you want to be about a 55 60% trader. That's going to be realistic for you. That's where you're going to have the most opportunities. You're going to be right more than you're wrong and you're going to win more when you're right than you lose when you're wrong. And that kind of is comfortable for most people. Now when you're weighing all this up in your trading system, the other thing you want to understand is probability, the probability of being right. And all probability is is the number of favorable outcomes divided by the number of total outcomes. And in order to know that you have to test variables. So you have to have a strategy that's got an edge already. And then you have to take that into the market and then you have to test it and you have to find these figures out for yourself. This is the bit here that most traders fail to do because they can't be bothered or they can't believe that you have to do that. And I think there's another way. And that's the reason that most people fail. Now the other main reason people lose at trading, which is what we're going to talk about right now is down to three main things. One, they don't have the tools. Okay. So they don't have the right, they're not using the right platforms. They don't have the right access to a decent broker. They don't know how to use indicators and things like that. They don't have access to those things to give them that edge. Number two is accountability. So they over leverage, they over trade, they risk too much per trade. They're forcing trades. They're in trades that they shouldn't be in. And then the other one is a strategy. They don't have a strategy with an edge. So what they're usually trying to do is they're trying to get rich quickly. They fall into a leverage trap. They've got small accounts. They're using huge leverage. They have a thousand pound account, or a thousand dollar account and they're risking 500 pounds per trade. And that leads to rapid account blow up. At this point, I want to say trading is a skill. It's not gambling. And just like flying a plane or performing surgery or playing professional sports, it requires some effort and some work and some discipline, which leads us nicely onto the right way to learn. Now there's six steps that I recommend you go and do from here. The first one is learn market charts. Okay. You need to learn how to read charts and how to read price action. The second one is building a trading strategy or learning a trading strategy that has an edge already. The next thing is to go and test that and demo that so that you can verify and repeat the process of that strategy. The next step is to learn risk management, how to apply all of this stuff to that trading strategy so that you win more when you're right than you lose when you're wrong and you're right more than you're wrong and you protect your capital in drawdowns and you boost your position size in winning streaks. Then you track and journal everything you do, what gets measured, gets mastered. And then finally use that data to improve and optimize your performance as a trader. And that cycle continues on and on and on. And it never ends. You don't just one day get to the point where you're profitable and then you sail off into the sunset and never have to do any work again. This is a, this is a continuous cycle of refinement, optimization, effort, and like maintaining your edge. But the key mindset is you have to think like a business owner, not a gambler. Each trade is one small business decision. Trading isn't about predicting the future. It's about managing risk in an uncertain market. And I want to reinforce that in order to do well at this, you need patience, discipline, you need to develop a skill and then you need to execute on that very, very consistently. If you're serious about learning trading properly, I've created a full beginner roadmap video that you should go and watch next. I'll put the link right here. And also, if you want to continue down this path, the next thing you have to understand so that you don't make these mistakes is the seven big reasons why traders fail so that you don't, you can go and watch that video here and until next time, take care. And I'll see you in the next one.