Overview
This lecture introduces the basics of stock market trading, focusing on the difference between investing and trading, and teaches foundational technical analysis concepts such as trend identification, candlestick patterns, resistance, and support.
Ways to Earn in the Stock Market
- Investment focuses on long-term growth and dividends using fundamental analysis.
- Trading is short-term buying and selling for quick profits, using techniques like intraday, options, and swing trading.
Investing vs. Trading
- Investing relies on a company’s fundamentals (management, revenue, balance sheet).
- Trading relies on technical analysis; company fundamentals are mostly ignored for short-term moves.
Importance of Technical Analysis
- Technical analysis is essential for traders to predict short-term price movements.
- Trading without technical knowledge is considered gambling and risky.
Types of Trends
- Uptrend: Price consistently moves higher (higher highs and higher lows).
- Downtrend: Price consistently moves lower (lower lows and lower highs).
- Sideways trend: Price fluctuates within a range, moving neither up nor down.
Candlestick Patterns
- Candlestick charts visually display stock price movements for different timeframes.
- The candle’s body shows the open and close; wicks indicate highs and lows.
- Green candles (bullish) show price increase, red candles (bearish) show price decrease.
Resistance and Support
- Resistance is a price level where selling increases, pushing price down.
- Support is a price level where buying increases, pushing price up.
- These levels are zones, not exact prices, and help predict potential reversals or price continuation.
Using Trends, Support, and Resistance
- Identifying the trend helps decide trade direction (buy in uptrend, sell in downtrend).
- Wait for price to break resistance or support before entering a trade.
- Always react to price movement; do not predict without evidence.
Practical Analysis Tips
- Use multiple time frames (1 min, 5 min, 15 min, daily) for thorough analysis.
- Moving averages can help confirm trends—price above MA typically signals uptrend.
- Paper trading is advised for practice before using real money.
Key Terms & Definitions
- Investment — Buying stocks for long-term growth and dividends.
- Trading — Short-term buying and selling for profit.
- Technical Analysis — Study of price movement charts to predict trends.
- Trend — General direction of market price (up, down, or sideways).
- Candlestick — Chart type showing open, close, high, and low prices within a period.
- Resistance — Price point where upward movement often stalls due to selling.
- Support — Price point where downward movement often halts due to buying.
- Higher High/Low — Subsequent price peaks/troughs higher than before (uptrend).
- Lower High/Low — Subsequent price peaks/troughs lower than before (downtrend).
- Paper Trading — Simulated trading to practice strategies without real money.
- Moving Average — Indicator averaging past prices to smooth trends.
Action Items / Next Steps
- Analyze and paper trade at least 30 different stocks using concepts learned.
- Practice identifying trends, support, and resistance.
- Avoid real-money trading until confident in analysis and strategy.
- Prepare for further learning about advanced indicators and candlestick patterns in future lessons.