Three Initial Tips To Understand Trading

You don’t get into the trading world by chance. It’s not part of your daily life.

If you came upon it, most likely, it’s because someone told you about it, or because you came to know about traders like me. Of course, this tickled your curiosity, but you may not know where to begin, even if just to make some sense out of such an abstract thing, too often equated with gambling.

You may feel like you can’t master it.

Well, first and foremost, just know that trading is not a game, but a way of investing our money through straightforward strategies you can use to your advantage. Thanks to these strategies, you can generate non-work income, or even live exclusively off this type of income stream, as it’s the case for many professional traders, who, by employing the proper strategies, manage and increase their fortune exponentially.

Well, what’s it about, then?

Trading is the act of buying and selling, among investors, financial instruments via the Internet, using third-party mediation (brokers). Going into greater detail, you can sell or buy stocks, futures, and other online financial instruments, and track your investment performance in real time, hence speculating.

Speculation has no negative connotation, though: within financial markets, in fact, it yields exceptional profits for those who engage in it, and in another blog post, if you wish to look into it further, I explain how it keeps markets balanced.
In order to help you understand trading, there are three initial tips, three main pointers you should know about.

1) Time
What is above all typical of this instrument are time frames and session durations. Usually, we think that investments are demanding and time-consuming. A trading session, on the other hand, can even last roughly two minutes; it is nonetheless true that, depending on the strategies adopted, its duration may increase, and last longer than a week or a month.
There are also sessions that go on for years, but that’s not the norm: the longer the time frame, the more we think of it as a traditional short-term investment. This means that you can engage in trading even for just a few minutes a day, or for a few hours per month, getting a positive payoff.

2) Buying and selling
In Italy, we are accustomed to buying to use: you purchase a dress, some food, a car, and so on, with an expense commensurate with how much you think you will use that item.
When we talk about trading, however, you need to get accustomed to working in a world where you don’t buy to use. So, don’t forget that in trading:
– you can always buy, and always sell something, by way of a click (entering a trade always means performing one of these two operations);
– you always buy to resell;
– you always sell to buy back.

Imagine buying 1 kg of oranges. If the price goes up, you can sell that back, and earn the difference. For instance, you buy for 10 and sell for 15. So, when selling, you exit the trade, and earn 5.

This is the simplest analysis for you to connect the dots, because no matter what trades we enter, we commonly do so because we think that it will raise in value over time, we never think that we might earn money even during a slump. As a matter of fact, instead, we can “gamble,” so to speak, on things turning for the worse.
I’ll explain it for you. Let’s go back to the orange example, and let’s say you don’t have them, but you know their price will drop.

You can head to a fruit market, ask them for a loan of oranges (perhaps paying €2 in return), and then sell the basket of oranges for €15. When the price will go down, you will buy that back for €8, exiting the trade, and will give the oranges back to the grocer. You will have spent €10, and earned €5.

That’s the analysis, more or less, but the thing is: the grocer is the broker, the market is the online trading platform, and the oranges are the financial instruments, whose value may increase or decrease, just like it happens for orange prices.

3) Your interaction with the asset can be direct or mediated.
That means you can buy or sell not just assets, directly, but also whatever may be in between, such as rights on assets, indirectly.
For example, if you buy a stock, you are directly buying an asset, whereas if you buy a contract for said stock, as it’s the case for what are called options, you are then indirectly trading on the asset.

A practical example of options? I want to buy the right to purchase a house that costs €100,000 for the same price, anytime from now to six months’ time. If, over the next five months, the house’s price were to increase to €150,000, I will nonetheless have the right to buy it for €100,000, and I will have made myself a deal. I will then have indirectly traded on that “home” asset.

In light of what I told you, you can already imagine there’s a whole world of tools and strategies to earn money through trading.
It’s a fantastic way to have your money make money, if you learn how to do it prudently. You might become your own boss, just by living off trading, or simply increase your income.

A great way to start is, of course, by reading my Investor’s Glossary, an appendix to “Invest in the Stock Market without stocks” Volume 5 in the Complete Works. Download it here, right now:

What’s important is for you to be careful: do not venture into this territory without having first taken a course that can give you the proper foundation to get started, practicing in demo mode (with fake money), at least for a while, so as to solidify what you learned during the course, and start by investing little money, up until you have gained confidence. Over the course of a few months, you will be operational, and will start enjoying the fruits of your investments, taking your life to the next level.

I’ve created a Trading series which allows you to become Financially Independent, even if starting out on Forex alone, a ebook free you the best techniques to generate automated income streams by investing very few hours per day.

Here’s to your financial independence!

Alfio Bardolla

Share with

Leave a Comment