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Beginner Trading Guide

Jun 19, 2025

Overview

This lecture provides a comprehensive beginner’s guide to trading, covering expectations, necessary tools, market analysis, strategy development, order types, risk management, backtesting, and practical steps for becoming a consistently profitable trader.

Setting Expectations & Mindset

  • Trading is a skill that takes 12–18 months to become consistently profitable; expect 6 months to learn and another year to practice and refine.
  • Define your financial goals (e.g., monthly profit target) and calculate the required trading capital based on realistic monthly returns (2–6% per month).
  • Only pursue trading if genuinely interested; focus and consistency are essential for success.
  • Set aside regular, uninterrupted study and trading time—consistency in practice leads to consistency in results.
  • Involve your support system by informing friends and family of your commitment and join communities of serious traders.

Understanding Charts & Price Action

  • Learn to read candlestick charts: Each candle represents open, high, low, and close prices within a set timeframe (e.g., 1 hour, 1 day).
  • Green (bullish) candles close above their open; red (bearish) candles close below their open.
  • Wicks show price rejection or volatility; the close reveals who won (buyers or sellers).
  • Bar charts (OHLC) convey the same open, high, low, close info as candlesticks but in a different visual format.

Market Conditions & Phases

  • Four market conditions: bullish (uptrend), bearish (downtrend), ranging (sideways), and choppy (indecisive).
  • Identify the market phase: “run” (trend extension) or “pullback” (retracement/correction).
  • Focus on entering trades during pullback phases in trending markets for optimal risk/reward.

Technical Analysis Fundamentals

  • Support is a price “floor” where price bounces; resistance is a “ceiling” where price stalls.
  • Prior resistance often becomes support (and vice versa) in trending markets; use both horizontal and angular (trendline) support/resistance.
  • Use other tools/indicators like Fibonacci retracement (common ratios: 38.2%, 61.8%) to find probable reversal zones.
  • Psychological even numbers (“handles”) are often respected price levels.

Pattern Recognition & Entry Signals

  • Look for price deceleration (smaller candles, wicks, reversals) at key levels.
  • Candlestick patterns:
    • High test (shooting star): upper wick shows rejection, signals potential reversal down.
    • Low test (hammer): lower wick rejection, signals reversal up.
    • Doji: indecision, can confirm turning points if at support/resistance.
    • Lower low/lower close (for short entries): a new low close signals continuation down.

Order Types & Placement

  • Order types: buy limit, sell limit, buy stop, sell stop, and at market (instant).
  • Orders are instructions to your broker; be precise about entry, stop loss, and target placement.
  • Always define three elements: entry, stop loss, and target for each trade.

Risk Management & Position Sizing

  • Risk a small, fixed percent per trade (e.g., 1% of your account).
  • Work out dollar risk per trade using account size, stop loss size (in pips), and desired percent risk.
  • Use standard, mini, or micro lots depending on capital and risk parameters.
  • Always calculate position size before entering a trade.

Strategy Development & Backtesting

  • A trading strategy consists of rules for entry, stop, and target, based on repeatable patterns.
  • Test strategies on historical data (“backtesting”) using spreadsheets to record:
    • Market condition, entry, stop, target, result, support/resistance touches, and indicators.
  • Calculate the system's expectancy formula: as long as expectancy is above zero, the strategy is profitable.

Demo Trading & Broker Selection

  • Practice on a demo account to refine execution—no real money at risk until confident.
  • Choose brokers with fixed spreads, good communication, and reputable practices.
  • Understand how to place orders, adjust positions, and manage trades on your chosen platform.

Leverage, Margin, and Lots

  • Leverage lets you control large positions with small capital but increases both potential gains and risks.
  • Margin is the collateral required by your broker to open a leveraged trade.
  • Standard lot: 100,000 units, mini lot: 10,000, micro lot: 1,000 of the base currency.

Key Terms & Definitions

  • Candlestick — a chart type showing open, high, low, and close prices for a set time interval.
  • Wick — the thin line on a candlestick, showing price extremes within the candle duration.
  • Support/Resistance — price levels where price tends to bounce (support) or stall/reverse (resistance).
  • Pullback — a temporary reversal of the prevailing trend; an opportunity for entry.
  • Order Types — buy limit (buy below market), sell limit (sell above market), buy stop (buy above market), sell stop (sell below market), at market (instant transaction).
  • Risk Management — controlling trade size and stop loss to limit losses per trade.
  • Backtesting — testing a strategy on historical market data to estimate performance.
  • Leverage — trading with borrowed funds to increase potential returns and risks.

Action Items / Next Steps

  • Block regular, consistent times in your calendar for study and practice.
  • Calculate your required trading capital and set realistic monthly return expectations.
  • Practice drawing support/resistance and identifying market phases on demo charts.
  • Build and backtest a simple strategy (e.g., lower low/lower close after pullback in trend).
  • Populate a trading log/spreadsheet with all test trades and calculate expectancy.
  • Open a demo account with a reputable broker and practice executing trades/trade management.
  • Master order types, risk management, and position sizing before trading real money.
  • Commit to ongoing practice and review as you refine your trading approach.

Full transcript