What is trading?

Everybody is familiar with the term “trading”. Most of us have traded in our everyday life, although we may not even know that we have done so. Essentially, everything you buy in a store is trading money for the goods you want.

At tradimo you will learn how to trade the financial markets online – but exactly what is online trading? This article will give you an understanding of how trading can be defined and how online trading works.

The principles of trading

The term “trading” simply means “exchanging one item for another”. We usually understand this to be the exchanging of goods for money or in other words, simply buying something.

When we talk about trading in the financial markets, it is the same principle. Think about someone who trades shares. What they are actually doing is buying shares (or a small part) of a company. If the value of those shares increases, then they make money by selling them again at a higher price. This is trading. You buy something for one price and sell it again for another — hopefully at a higher price, thus making a profit and vice versa.

But why would the value of the shares go up? The answer is simple: the value changes due to supply and demand – the more demand there is for something, the more people are willing to pay for it.

Increase in demand means an increase in price

We can explain this using a simple everyday example of buying food. Let’s say you are in a market and there are only ten apples left on a stall. This is the only place where you can buy apples. If you are the only person and you only want a couple of apples, then the market stall owner will most likely sell them to you at a reasonable price.

Now let's say that fifteen people enter the market and they all want apples. To make sure that they will actually get them before the others do, they are willing to pay more for them. Hence, the market stall owner can put the price up, because he knows that there is more demand for the apples than supply of them.

Once the apples reach a price at which the customers think they are too expensive, they will then stop buying them. When the market stall owner realises that he is not selling his apples anymore because they are too expensive, he will stop raising the price and it may come back down to a level, at which customers will start to buy the apples again.

Increase in supply means a decrease in price

Let’s say that suddenly another market stall owner comes into the market and has even more apples to sell. The supply of apples has now increased dramatically. It stands to reason that the second market stall owner may want to sell apples at a cheaper price than the first stall owner to entice customers. It also stands to reason that the customers would probably want to buy at the lower price.

Seeing this, the first stall owner will most likely bring his prices down. The sudden increase in supply has therefore brought the price of the apples down.

The price at which demand matches supply is called the “market price”, i.e. the price level at which both the market stall owner and the customers agree on both a price and number of apples sold

Application to the financial markets

The concept of supply and demand is the same in the financial world.

If a company posted some great results and is paying very good dividends, then more people want to buy the shares of the company. This increased demand will lead to an increase of the price of those shares.

What is online trading?

For a long time financial trading was purely conducted electronically between banks and financial institutions. This meant that trading in the financial markets was closed to anyone outside of these institutions. With the development of high speed Internet, anyone who wanted to become involved in trading was able to do so online.

Almost anything can be traded online: stocks, currencies, commodities, physical goods and a whole host of other things – at this stage, you do not need to worry about all of these. For now, just keep in mind that if something can be traded, it will be traded. Out of all of these markets, the forex market is the largest. Almost $4 trillion worth of currency is traded every single day – this is bigger than any stock exchange anywhere in the world.

How Forex Traders Can Identify A Favorable Market To Trade

"To everything - turn, turn, turn
There is a season - turn, turn, turn
And a time to every purpose under heaven

A time to gain, a time to lose
A time to rend, a time to sew "

-The Byrds, 1965

Knowing what environment to trade in is often the missing component to trading plans. If you can identify when to trade and when not to trade, you'll find trading a lot easier than most. Of course, you would believe it to be a carnal sin to not be in the market 100% of the time but that just isn't the case for individual traders like you and me.

The key thing you want to avoid is just entering a trade regardless of the overall technical conditions.  If you pay no attention to the overall conditions, the overall market could be in a large range with no ability to breakout, which leads to many false breakouts.  Because many traders enjoy trading trends, false breakouts can be the death nail to many new traders.

The Two Market Types That Deserve Your Focus

 For simplicity sakes, there are two types of market environments that are known as either a trending or impulsive market or a ranging or corrective market. Like the name sounds, an impulsive market is not bound by past price extremes and shows a consistent ability to push new highs in an uptrend or new lows in a downtrend. Conversely, a ranging or corrective market often resists moving past prior price action extremes and will move against a prior impulsive move by a Fibonacci relationship.

The beauty of Forex trading is that I've seen traders make careers out of both environments. A trending environment favors those who like to take advantage of a major monetary policy divergence where one country like the UK in early 2014 continue to see a robust recorvery which could push them to raise rates early than anticipated against a weaker currency. In the best case scenarios, a trend can go unscathed for months at a time like GBP/CAD in 2013 / 2014.

A ranging market favors a buy low and sell high mentality. Buy low and sell high works well in a ranging market because highs and lows are well defined whereas a selling high often means leaving a lot of money on the table in a trending or impulsive market because the market can be much higher in a few weeks from today. From the experience of GCM, whom I am currency analyst and trading instructor for, we've found that new traders do better in a range bound environment because a losing trade can eventually work its way back into profitability where as if you're on the wrong side of the trend, you may have to be forced out if you can't take yourself out.

There are many tools that traders in the Forex market can look to before determining the overall market condition. Only when the market confirms that it is acting within the scope of your trading preference should you then look to take a trade. Here's a breakdown of how you can confirm the market environment as trending or range-bound.

Relative Strength Index (RSI)

Most new traders know the RSI as the oscillator that travels between 70 and 30 and that you should buy the Forex Pair when RSI crosses above 30 and sell when it crosses below 70 however, this logic only really holds in a range bound market. If you're a trend-favoring trading and you notice the RSI pushing down to 20 and never breaking above 60 then you're in a strong downtrend. Conversely, if you see RSI pushing into and above 80 but having a hard time pushing below 40 then the currency pair would be in a strong and resilient uptrend until 40 is broken.

Ichimoku (The Cloud Indicator)

Ichimoku is not just one indicator, but multiple indicators wrapped into one. It is often known as the cloud indicator because it produces a cloud on the chart that acts as a price floor or support in an uptrend and in a downtrend the cloud acts as a price ceiling or resistance. Over the following weeks you'll learn a lot about the dynamics of Ichimoku to keep you on the right side of the market while minimizing losses.

Simple Moving Average Crossover (21& 55)

Before the invent of high-powered trading platforms offering libraries of indicators, there were simple yet often effective trading systems. One of the first technical trading systems was a moving average crossover system. In its simplest form, a moving average crossover looks to help traders enter in the direction of the trend by buying when the faster / smaller moving average (like the 21 day moving average) crosses above the slower / larger moving average (like the 55 day moving average).

Any trader can utilize these tools to learn how to identify a worthy trend and / or market environment to trade. However, these tools are only meant to help you recognize the environment. We'll break down developing an objective entry on the charts in the next lesson.

Happy Trading!

Mental Skills For Successful Technical Trading

Are you wondering why you are not making money in the forex market despite all your efforts ? Do you find the market too difficult ?

Sure you are missing out something, and the most important: the mental skills. The mental skills needed to face the current forex market conditions, and to profit from it are: 

• Hope 
• self-Transcendence 
• Imagery

Even if there is no hope, you have to create it

Being a successful trader is a long journey, we all underestimated in the beginning. As the time pass by, we come to the conclusion that the trading strategy or strategies we are currently using are no more consistent. Now, we want to quit…

There is no more hope, no long term perspectives of getting anything good from this market. That is the line which separate winners from losers. In order to advance in our life, we need to be hopeful of a brighter future no matter what happens. To be more clear, when there is no hope, we need to create it. Hope is a powerful force existing within us.

How to activate hope and keep it strong ? 

Living one’s life as a mission

Living one’s life as a mission for the true happiness of other human beings generate a constant flow of joy to advance even when we face hard times. As people say, building self-discipline is too difficult, almost impossible. But following a strong discipline, and rule built by the others is something easier than anything else.

This is the daily life of the trader. A trader trading a firm capital’s will strictly respect the minimum and maximum applied to him by the company’s rules. But, being in his own, he won’t be able to follow the same rules with the same commitment. That’s why living one’s life or viewing your trading activities as a mission to help other people in the future is the shortest way to achieve discipline, a maintain a burning hope…

Feeling trading difficulties as an insult…

Not insults in the way that they defeat you, but a prevarication to yourself, but as a call to firmly determine yourself in order to show them what you can achieve in your life and trading career. In the late 80, when China was trying to open to the western world, they came out producing some movies we all like in the beginning. Some Shaolin or Karate movies. The bottom line was almost the same.

A young man, or sometimes a kid saw his father or uncle being killed by murderers, and he decides to avenger him. So a few weeks later, he will start to train, train and train to death. Finally, at the end of the movie, after several trading months and hard struggles he will end up killing those who murdered his relative.
Even the bandit chief…This is the kind of spirit; we have to conquer and develop with our trading activities. When Mahatma Gandhi decided to start his non-violence struggle, he and his friends made a great vow : They bloodshed themselves swearing one to an other this : 

“ in this battle we are going to start, the guy who is not ready to fight till the final victory, it’s better for him to quit right away. But if you decide to follow the group, and in the middle of the difficulties you betray, we are going to kill you by all means…"

When we have such images in our minds, we can never be defeated, by any challenging situation. This is what we call commitment. If you don’t swear to yourself or even to somebody else, make sure all the effort you are making, are just joke and only joke.

The real change in the direction of your trading career comes in when you put your determination and goals as an oath on a piece of paper and come back from time to time to read it and refresh your determination.
In short, the 2 ways to keep our hope strong is to live our life as a mission and to feel our trading difficulties as an insult.