The world of financial trading, seemingly brimming with temptation and hidden risks, attracts countless people every day. It's not a get-rich-quick scheme, but a rigorous field requiring knowledge, discipline, and strategy. We will systematically introduce it, starting with the core principles, market types, analytical tools, risk management, and psychological fortitude.
Part 1: Core Concepts and Basic Concepts
Before engaging in any transaction, you must first establish the correct concept.
1. Trading vs. Investing
Investing : Focusing on the long term (several years or even decades), buying and holding assets based on fundamental analysis, hoping they will appreciate as the economy grows. For example, buying blue-chip stocks for their dividends.
Trading : Focusing on the short to medium term (seconds to years), profiting from price fluctuations. Traders focus on "price trends" and "market sentiment."
2. The fundamental relationship between risk and return
High returns inevitably come with high risks: this is an iron law of the financial markets. Don't fall for the "low risk, high return" scam.
Risk management is the top priority: successful traders first think about "how much can I lose on this trade" rather than "how much can I earn."
3. Compound interest effect
Einstein called it the "eighth wonder of the world." Reinvesting your profits will generate new profits. The key is consistent and stable profitability, not a one-time windfall.
Part 2: Introduction to Major Financial Markets
Which markets can you trade?
1. Stock Market
Target : Company stocks.
Features : High liquidity, transparent information, suitable for various strategies (from day trading to long-term investment).
Keywords : blue chip stocks , growth stocks, dividends.
2. Foreign exchange market
Underlying asset : Currency pair (e.g. EUR/USD).
Features : The world's largest and most liquid market, operating 24 hours a day (excluding weekends). Highly leveraged and carries significant risk.
Keywords : major currency pairs, crosses, spreads.
3. Futures Market
Underlying asset : Standardized contract (such as crude oil, gold, indices, agricultural products).
Features : High leverage, can be used for hedging risk or speculation. Has an expiration date.
Keywords : margin, contract specifications, expiration date.
4. Cryptocurrency Market
Target : Bitcoin, Ethereum and other digital assets.
Characteristics : Extremely volatile, 24/7 trading, regulatory environment still developing, and extremely high risk.
Keywords : Volatility, blockchain, wallet.
Part III: Three major schools of market analysis
How to judge the market direction?
1. Technical Analysis
Core ideas : Market behavior incorporates all information; prices follow trends; history repeats itself.
Commonly used tools :
• Charts : candlestick chart, line chart, bar chart.
• Trend indicators : Moving Average (MA), MACD.
• Momentum indicators : Relative Strength Index (RSI), Stochastic Oscillator.
• Support and Resistance : Identify key areas where prices may reverse.
• Patterns : head and shoulders top , double bottom, triangle, etc.
2. Fundamental Analysis
Core idea : Assets have intrinsic value, and prices will return to that value over the long term.
Analysis objects :
• Stocks : company financial statements (PE Ratio, EPS), industry outlook, and management team.
• Foreign exchange : national interest rates, inflation rates, GDP, and employment data.
• Futures : supply and demand, inventory data, weather, and geopolitics.
3. Emotional Analysis
Core idea : The overall market sentiment (greed or fear) is an important force driving short-term price fluctuations.
Measurement tools :
• Fear and Greed Index : used for stock markets and cryptocurrencies.
• Commitment of Traders Report : View the market positions of large institutions.
• Put/Call Ratio : Measures sentiment in the options market.
• In practice, successful traders usually use a combination of the three.
Part 4: Golden Rules of Risk Management
This is the key to distinguishing between amateurs and professionals.
1. Set a stop loss
Definition : A pre-set closing price used to limit the maximum loss on a single transaction.
Importance : Protect your capital and prevent small losses from turning into big losses. Trading without a stop-loss is suicidal.
Methods : Technical stop loss (such as falling below the support level), amount stop loss (such as the loss does not exceed 2% of the principal).
2. Set profit stop
Definition : A pre-set closing price used to lock in profits.
Importance : Avoid "paper wealth" and prevent profit-taking.
3. Location scale management
Definition : Determines how much money to invest in each trade.
Core principle : Don't put all your eggs in one basket. Risk on a single trade should not exceed 1%-2% of your total capital.
4. Risk-Reward Ratio
Calculation : Potential Profit/Potential Loss.
Strategy : Only participate in trades with a risk-reward ratio greater than 1:1.5 or 1:2. For example, if you are willing to lose 50 pips, then your target profit should be at least 75 pips or 100 pips.
Final advice:
Financial trading is a difficult and lonely journey that requires constant learning, reflection, and self-discipline. Over 90% of retail traders ultimately lose money because they lack the necessary knowledge, planning, and discipline. Only by treating trading as a serious profession, rather than a get-rich-quick scheme, can you survive and succeed in this marathon.
