If you’re starting from scratch and want to understand what trading and technical analysis are, you’re in the right place. In this article, I will explain it in a simple and direct way, without unnecessary fluff. So, if you can, hit the like button and let’s dive in!
What Is Trading?
Trading is a term that means “exchange.” In the financial context, it refers to buying and selling financial instruments, such as stocks, cryptocurrencies, ETFs, among others, with the goal of profiting from price changes. A trader profits from the difference between the purchase and selling prices of these assets.
In the beginning, many believe that trading is a form of gambling, but nothing could be further from the truth. Trading is based on technical analysis and indicators that help us predict the likelihood of a price rising or falling. It’s not a guesswork. It’s a strategy based on data.
Price Charts
Let’s talk about price charts, which are essential in technical analysis. A price chart has two axes: time (horizontal) and price (vertical). For example, imagine the price of gold. On November 1, 2018, gold was being traded at $1,222, and by April 2019, it had risen to $1,283. Whoever bought gold in 2018 and sold it in 2019 profited from that price difference. It’s that simple.
Now, many people tend to overcomplicate trading, but don’t get me wrong: I’m not saying it’s easy. In fact, most people who start trading end up quitting, either due to a lack of knowledge or because they can’t handle the emotional aspect. Trading requires a combination of technical skill and emotional control.
Different Time Frames
In trading, you can operate in different time frames. A monthly chart, for example, shows price changes over months or years. A 5-minute chart, on the other hand, shows quick price fluctuations over minutes.
If you look at a 5-minute chart, you’ll see that in a short period, gold can move from $2,665 to $2,667. This might seem like a small change, but small variations can generate considerable profits, depending on the capital invested.
However, it’s important to understand that the shorter the time frame, the more “noise” there is. Small price movements can be influenced by large investors, increasing the risk when trading in smaller time frames. If you can’t spend the entire day monitoring the market, it might be easier to trade on larger time frames, such as hourly or daily charts, where there is less noise.
Trading with Large Companies
Another important point is the liquidity of the asset you’re trading. For instance, Apple is one of the largest companies in the world, with a market capitalization of trillions. This means that even large investors have less ability to influence the price of its shares. If you trade smaller companies with less liquidity, you may struggle to buy or sell at fair prices.
Define Your Profile
One of the first steps for anyone wanting to start trading is to define their profile. Will you do Day Trading, which involves quick buying and selling throughout the day? Or would you prefer Swing Trading, where you hold positions for days, weeks, or even months?
Additionally, you need to choose which assets to trade: stocks, cryptocurrencies, currency pairs (Forex), among others. This decision is yours and depends on your interest and knowledge of each market.
Candlestick Charts
Now, a fundamental point for anyone who wants to trade: reading candlestick charts. This is the most commonly used chart by traders, and it offers much more information than a simple line chart.
Candlesticks were created in Japan in the 18th century, initially to represent the price of rice. Today, they are widely used in the financial market. In the next article, I’ll explain how to read and interpret these charts, which are essential for anyone looking to profit in trading.
Conclusion
This was just an introduction to the world of trading and technical analysis. In future articles, we’ll dive deeper into chart patterns, time frames, and strategies for trading more safely. So, if you enjoyed this content, subscribe to the channel and stay tuned for the next lessons!
-> Check out the video: