Trading Course
Module 1: Introduction to Day Trading
Understanding the Financial Markets
Trading is the act of buying and selling financial instruments in the pursuit of profit. To become a successful day trader, it's crucial to gain a solid understanding of the financial markets and the various assets that are traded within them.
Financial markets are platforms where buyers and sellers come together to trade assets such as stocks, forex currencies, commodities, bonds, and cryptocurrencies. These markets provide the infrastructure for investors and traders to participate in buying and selling activities.
Key Concepts in the Financial Markets:
- Supply and Demand: Prices of assets are determined by the balance between supply and demand in the market. When supply is low and demand is high, prices will rise, until there is a surplus in supply and or less demand.
- Market Participants: Individuals(Known as retail traders), institutions(Banks and Corporations), and governments participate as buyers and sellers in the markets. Retail traders have the least effect on markets, due to having less capital. Retail traders aim to identify the patterns that the larger players use, which move markets, and then try to join in on these moves when they happen.
- Liquidity: Liquidity refers to how easily an asset can be bought or sold without significantly affecting its price. If for example, a commodity is being traded by millions of people, several times a day, then it takes more large scale investments to move the price up or down. If a commodity is traded by very few people, then a large investment or the pulling out of those investments, will cause prices to fluctuate easier.
- Volatility: Volatility measures the degree of price fluctuations in an asset, indicating its riskiness. Volatility comes from having large amount of market participants trading at the same time. For example, the NEW YORK OPEN, tends to be very volatile as it has a huge amount of trades, flooding in, as soon as the market opens. Big news events also trigger massive price moves/volatility.
Types of Financial Markets:
There are various types of financial markets, including:
- Stock Market: Where shares of publicly traded companies are bought and sold. (Apple, Tesla, Netflix, US30, NAS100 etc.)
- Forex Market: Where currencies from around the world are traded against each other. (EUR/USD, GBP/JPY, USD/CAD)
- Commodity Market: Where physical goods like gold, oil, and agricultural products are traded. (GOLD, SILVER, CORN, CRUDE OIL, NATURAL GAS)
- Bond Market: Where debt securities issued by governments and corporations are traded. (IBM Corporate Bonds, US treasury Bonds, New York City Municipal Bonds
- Cryptocurrency Market: Where digital currencies like Bitcoin and Ethereum are bought and sold.
Market Hours and Time Zones:
Different markets operate in various time zones, creating opportunities for trading around the clock. Traders should be aware of the opening and closing times of the markets they're interested in.
Here are the open and closing times for the markets:
Forex Market:
| Opens | 10:00 PM GMT (5:00 PM ET, 3:00 PM MST, 12:00 PM PST, 6:00 AM AEDT) on Sunday (Sydney opens) |
|---|---|
| Closes | 10:00 PM GMT (5:00 PM ET, 3:00 PM MST, 12:00 PM PST, 6:00 AM AEDT) on Friday (New York closes) |
New York Stock Exchange (NYSE):
| Opens | 2:30 PM GMT (9:30 AM ET, 7:30 AM MST, 4:30 AM PST, 11:30 PM AEDT) |
|---|---|
| Closes | 9:00 PM GMT (4:00 PM ET, 2:00 PM MST, 11:00 AM PST, 6:00 AM AEDT) |
London Stock Exchange (LSE):
| Opens | 8:00 AM GMT (3:00 AM ET, 1:00 AM MST, 10:00 PM PST - Previous Day, 6:00 PM AEDT) |
|---|---|
| Closes | 4:30 PM GMT (11:30 AM ET, 9:30 AM MST, 6:30 AM PST, 2:30 AM AEDT) |
Tokyo Stock Exchange (TSE):
| Opens | 12:00 AM GMT (7:00 PM ET - Previous Day, 5:00 PM MST - Previous Day, 2:00 PM PST - Previous Day, 10:00 AM AEDT) |
|---|---|
| Closes | 6:00 AM GMT (1:00 AM ET, 11:00 PM MST - Previous Day, 8:00 PM PST - Previous Day, 4:00 PM AEDT) |
Hong Kong Stock Exchange (HKEX):
| Opens | 1:30 AM GMT (8:30 PM ET - Previous Day, 6:30 PM MST - Previous Day, 3:30 PM PST - Previous Day, 11:30 AM AEDT) |
|---|---|
| Closes | 8:00 AM |
Note that these times may change due to daylight saving time changes or holidays, so it is always a good idea to check the exchange's website or other reliable sources for the most current information. Also, the times provided are for the regular trading hours, and there are also pre-market and after-market trading hours which vary by exchange.
In conclusion, understanding the financial markets is the foundation of becoming a successful day trader. It involves comprehending market dynamics, market participants, and the various assets traded, all of which play a crucial role in shaping day trading strategies and decisions.
Different Types of Trading
Traders can engage in various types of trading strategies based on their preferences and risk tolerance. Here are some common trading styles:
- Day Trading (Our main focus): Traders open and close positions within the same trading day, aiming to capitalize on short-term price movements.
- Swing Trading: Positions are held for several days to weeks to capture intermediate price trends.
- Position Trading: Traders hold positions for an extended period, often months or even years, focusing on long-term trends.
Each trading style has its own advantages and challenges, and traders need to select a style that aligns with their goals and lifestyle.
What you will discover throughout this course is that the same core principles apply to all trading styles, however longer term trends will involve more information about worlwide events, whereas day trading and scalping can involve a high amount of technical analysis knowledge to capitalize on more predictable patterns. Swing trading can be a healthy combination of both.
The Role of Brokers
Brokers act as intermediaries between traders and the financial markets. They provide trading platforms, execution services, and access to various markets. Traders should choose reputable and regulated brokers that offer competitive spreads, reliable platforms, and good customer support. Check out our recommended brokerage, at the top of each of our pages.
Creating a Trading Plan
A trading plan is a roadmap that outlines your trading goals, strategies, risk management rules, and trade
execution procedures. Having a well-defined trading plan helps traders maintain discipline and consistency in
their trading activities.
A typical trading plan includes:
- Trading goals and objectives
- Primary trading style
- Selected markets and assets to trade
- Entry and exit criteria
- Risk management guidelines
- Contingency plans for unexpected events
Practical Exercises
To reinforce your understanding of this module, take time to explore different financial markets, research trading styles, and consider what factors you would include in your trading plan. Being proactive in your learning journey will contribute to your success as a professional trader.
NOTE: Please note that everything in the course is taught with the assumption that you are using MT4 as your trading platform. This is in no way necessary, but any examples are shown from the MT4 terminal and any indicator downloads are for MT4.
Next up: Day Trading Lesson 2: Basics of Technical Analysis