Free Online Trading Course for beginners

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What is trading?

Trading is a profession that consists of studying the markets by means of different types of analysis (technical and fundamental) in order to invest in different financial instruments with the aim of making a profit. Traders are known as traders, as trading means stock market trading. Traders can work independently, in an investment fund, in a bank or in any other financial institution.

Traders are classified as scalpers, daytraders and swingtraders depending on the duration of their trades and their strategies, whether they are intraday, intraweekly or intra monthly. The opposite of a trader is an investor, who trades for the long term.

Trading is not a game of chance, but a way of investing, where mathematics and statistics are an important part of this profession. Later we will see the types of trading that exist, but as always remember, you must practice a lot and train yourself in this profession if you want to make a living from it. With patience and a lot of practice, you can do it.

What are stock market

The stock market is a trading space for securities, i.e. a place where buyers and sellers negotiate “papers or documents” that represent a monetary value. These can be company stocks, bonds, contracts, currencies, etc. Some markets are small, such as the Latin American stock exchanges, others are larger, such as the New York Stock Exchange, the London Stock Exchange, the Shanghai Stock Exchange and the Tokyo Stock Exchange. In this app we will use the New York Stock Exchange and Nasdaq for all the explanations and examples, but everything you learn is applicable to any stock exchange (there are many in the world, to mention some examples: Hong Kong Stock Exchange, Toronto Stock Exchange, Bombay Stock Exchange, Mexico Stock Exchange, Buenos Aires Stock Exchange, Colombia Stock Exchange, among others).

These stock markets are a very important part of the economy of a country and of the world in general.

Throughout the world, markets are supervised and regulated by specialised bodies (the SEC in the case of our example of the New York Stock Exchange) to protect investors, control brokers, prevent fraud and fraud and manipulation, control who issues securities, and allow transparency in operations, since for a company to be listed on the stock exchange it must declare all its operations. Regardless of which country’s stock exchange you trade on, there are international standards set by the International Organisation of Securities Commissions (IOSCO).

What is a broker dealer

A broker dealer is an agent between a trader and the companies that offer their stocks on the market, i.e. a trader carries out his buying and selling transactions through the broker. In return, the broker charges a commission for this service. In addition, certain data is secured, such as where the income to be put on the account comes from, whether the person knows about the subject, otherwise they may refuse to open an account for you, whether the income is legal, among other things. If you are not trained in stock market and trading, it is a huge risk, for this reason they ask to know if you know what you want to do. We recommend that after studying this app, you make operations in a simulation platform, with fake money, and after you see that you are doing well, you open the real account with the broker. Don’t make the mistake of opening it first and then regretting it if you don’t like trading.

In practice, a trader has an account with a broker, the broker gives him a working platform (where he can see stock prices, etc.), which can be a software, an app, or a website, and the trader sends his buy and sell orders. The broker just executes them. Nowadays, you need the Internet to trade on the stock market, although there are still brokers that trade over the phone.

You must find a broker that you like, that you can afford to pay their commissions, that allows you to trade from your country, that has the type of investments you want to make (there are many types of brokers, futures, forex, cfds, etc.), etc. You cannot trade without a broker, it is a necessary condition. The one we recommend is TD Ameritrade from the US (they have a free fake money simulation platform), Google it and check their website.

Types of Trading in Stock Market

The only difference between one trading style and another is the time frame. That is to say, the time frame in which the operations are carried out. Below we detail them:

Scalpers

They open and close trades very quickly, so much so that their trades can last a few seconds or minutes.

They usually open several trades in one trading session. This type of technique has the attraction of making quick profits, but it is not suitable for every profile as it is not easy, it is too fast, it requires a lot of knowledge, high concentration and a very fast trading platform as seconds can make the difference between winning and losing. Scalping uses fast price movements and for the price to move fast, there needs to be volatility. For this reason, it is generally traded at market openings as these are the most volatile times.

In addition, a scalper must compete with the high-frequency trading of large institutions, which use automatic, machine-driven systems, making it riskier and more difficult. It requires a lot of practice and a well-developed strategy, agility and speed. Most scalpers, to make decisions, use price action, support and resistance, and trading volume and sometimes a customised technical indicator. Their charts are simple.

If you are interested in this style, think about whether you really have the attitudes and knowledge to be one. Whatever trading system you use, it must be tested and offer a good risk-return ratio.

Day traders

They look for trades within trends that originate within the day. They can last several minutes or be open for several hours, but they always close their trades on the same day they started them. You don’t want to leave them open for the next day.

If all your trading is focused on speculating in very short periods of time (minutes or seconds) it is not Day Trading, it is Scalping as we saw before.

If you decide to speculate with day trades, you must have a good mental control, have a lot of patience and be alert at all times. This stresses a lot, that’s why not all traders can handle day trading. It is a day job, some only do one trade a day.

It is one of the most popular trading styles, but beware, there are many people who believe that it is easy money, and that does not exist in the stock market. It requires a lot of practice and knowledge, otherwise the risk of day trading can make you lose all the money you have in your account. Even if it is slower than scalping, the daytrader must be willing to change his perception of reality in a few minutes or to make quick decisions in case of any news that affects his position, in day trading there is not much room for error. In fact, some brokers will not allow you to do it if you do not demonstrate knowledge because of the high risk involved, just like scalping.

In day trading and scalping you have to learn to put emotions aside, being emotional is the worst thing you can do as a trader. If this is your style, practice, study, know yourself and control your emotions, but don't risk doing it with real money until you have a winning strategy and high emotional control.

Swing traders  

Swing traders’ trades can be open for days, weeks or even months.

They take a trend and do not close it until they see signs that it is ending or that the trend is running out of steam.

Swing trading seeks to capture a part of a larger trend of a listed asset.

It is a short term trading and in which it does not really matter the background trend of the stocks or the asset in which we are going to operate, although it is usual to operate “in favour of the main trend”, some also operate against when they consider that the main trend is already being exhausted. This is called “counter-trend trading”.

While scalping and day trading use minute charts (from 1 to 15 minutes), swing trading usually uses 15 minute, 1 hour, daily or weekly charts and looks for explosive price movements.

It is preferable to look for trades in favour of the trend, because we must assume that the movement will be much cleaner than if we trade against the trend.

Position Traders 

Also called “Position Trading” is where trades are opened that can last for months and months, while long term trends are developing. The idea is to make the most of the long-term trends that may emerge.

Among the different strategies, it is the least knowledge-intensive, as it is simple and slower. However, the simplicity of the strategy has the disadvantage that it is difficult to stay within a trend when there are sharp falls in the market and you are losing much of what you have gained.

This type of trading is usually less stressful than scalping or day trading, as once the decision to invest has been made and the necessary research has been done, the trade is monitored from time to time, for example once a week. However, you must endure movements against the main trend.

A position trader requires the following characteristics:

  1. You must have an independent view of the market, and not let the opinion of others influence you.
  2. You must have the stamina to watch your positions go up and down, but not close them because it is not yet time to do so.
  3. If you get excited when you have a 10% profit and want to close your position, Position Trading is not for you, as you are looking for higher returns.

A position trader seeks to get into a long term trend, and not get out until it is clear that it is over. He uses weekly and monthly charts, and sometimes even yearly charts. It must be clear at what point you want to exit. However, unlike what some believe, it also has risks, such as the main trend changing and going against what you wanted.

The stock exchange and stock indices

The New York Stock Exchange (NYSE) and the Nasdaq trade most of the stocks in the United States, but they handle different types of stocks and the two exchanges have their differences. One of them has to do with the location where they are located. The NYSE operates in a physical location, the famous Wall Street of the movies, in New York City, while the Nasdaq does not have a physical location but operates virtually.

It is generally considered that Nasdaq stocks are more volatile (they move quickly) and NYSE stocks are considered more “established”. Within the NYSE are listed very old companies such as Ford or General Electric.

If you want to trade on NYSE or Nasdaq, this is not a problem when choosing companies because most brokers (we will see later, but they are the intermediaries where we open an account to trade) allow us to trade both from the same virtual platform. If you choose to trade on other exchanges, don’t worry. Everything you will learn about trading applies, but you will need to find a broker that allows you to trade on that exchange (for example if you want to trade on Asian or Latin American exchanges).

What are Indicators in the Stock Market?

The stock market index is an indicator, represented by a number, which reflects how the price of a set of listed assets that have certain common characteristics, such as belonging to the same market, having a similar capitalisation, belonging to the same industry, etc., evolves. It is made up of a set of financial instruments.

The indices are useful to know the evolution and behaviour of the market because this index gives us a summary of how the companies that are part of it are doing. All markets have stock market indices.

The oldest stock market index is the Dow Jones Transportation Average. It was created on 3 July 1884 by Charles Dow, founder of the Wall Street Journal. It currently includes the 30 most important industrial companies listed on the NYSE.

Leading indicators in the stock market:

United States

  • Dow Jones Industrial Average: Known as Dow Jones, it is the one mentioned above. It is made up of 30 US companies.
  • S&P 500: Index made up of 500 of the largest companies on the New York Stock Exchange (NYSE) and the Nasdaq. It is one of the most important.
  • Nasdaq 100: Index composed of the 100 largest non-financial companies of the Nasdaq.

Europe

  • Eurostoxx 50: The main European stock market index. Composed of the 50 most important companies in the Eurozone.
  • DAX 30: Main German index with the 30 most important companies on the Frankfurt stock exchange.
  • FTSE 100: London Stock Exchange index with the 100 most important companies.
  • CAC 40: Index composed of the top 40 companies on the French stock exchange.
  • IBEX 35: Main stock market index in Spain with the 35 companies with the largest capitalisation and liquidity.

Asia

  • Nikkei 225: Index of the Tokyo Stock Exchange which includes the 225 largest Japanese companies, listed on the first market of the Tokyo Stock Exchange. The Nikkey was first published on 16 May 1949.
  • KOSPI (Korea Composite Stock Price Index): Represents the South Korean stock market with more than 700 companies.
  • BSE Sensex 30, Bombay Stock Exchange Sensitive: Contains 30 large Indian companies.
  • S&P CNX Nifty: Comprising 50 companies listed on the National Stock Exchange of India.
  • Hang Seng: Representing 45 companies listed on the Hong Kong Stock Exchange (China).
  • SSE 50: Includes 50 companies listed on the Shanghai Stock Exchange (China).
  • CSI 300: Combines 300 companies listed on the Shanghai and Shenzhen stock exchanges (China).

Latin America

  • IBOVESPA: Main stock market index of São Paulo, Brazil.
  • MERVAL: Representative index of the Buenos Aires stock market, Argentina.
  • Lima General: General Index of the Lima Stock Exchange (IGBVL), Peru which currently represents the 29 most traded stocks in the market.
  • IPSA: Selective Stock Price Index of the Chilean Stock Exchange, representing the 40 companies with the largest stock market presence.
  • IPC: Main indicator of the Mexican Stock Exchange.
  • IBC: Índice Bursátil Caracas (IBC) is the arithmetic average of the capitalisation of the 15 most liquid securities in the stock market of the Caracas Stock Exchange, Venezuela.
Now that you have a basic understanding of trading, we will start looking at the types of analysis and strategies. As you learn, you will notice which trading style suits you, which one you like, which one you don't like, etc. In this way, you will define your investor profile.