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Trading Explained For Complete Beginners - In 17 Minutes — Transcript

by Jason Graystone · 3,153 words · 456 segments · language en · Watch on YouTube

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0:00Most people think that trading is
0:01complicated. Charts and financial
0:03indicators and jargon and it scares them
0:06away, but trading is actually one of the
0:08simplest ideas in the world. And in the
0:11next few minutes in this video, I'm
0:12going to show you exactly how trading
0:15works from the ground up. By the end of
0:17this video, you'll understand what
0:19traders actually do, how markets move,
0:22and why most people lose money. But once
0:24you see it explained properly, it's
0:26actually surprisingly simple. So we're
0:28going to start with what trading
0:30actually is. Trading simply means buying
0:34something with the intention of selling
0:36it later at a higher price. So if you
0:39buy a stock at $100 and then the price
0:42of that stock rises and you decide to
0:45sell it at $110, then you come away with
0:48a $10 profit. Now the same happens in
0:50the Forex market or the currency
0:52markets. If you're buying the British
0:53pound against the US dollar and the same
0:56thing happens and you buy at one price
0:58and you get out at a higher price and
1:00you sell back, then what you're doing is
1:02you're making a profit on those
1:03incremental changes in the currency
1:05market. A lot of people think, well,
1:07it's going to take you ages to make any
1:09money in a currency market cuz the moves
1:11are so small every day. But that's where
1:13they're wrong. We're not making money in
1:16massive moves in the market. We're
1:17actually making moves in tiny
1:20incremental decimal point moves in the
1:23market. So for instance, if you go to
1:25the airport and you go to the exchange
1:27booth at the airport, you'll see that
1:29they're presenting a price to you.
1:31Uh but what you'll also see is a few
1:33more digits on the right hand side. So
1:35it will say something like the euro is
1:381.3582,
1:41okay? Now when you return from the
1:43holiday, it might be 1.36 or 1.3592,
1:48right? But that doesn't matter to us as
1:51traders because what we're looking at is
1:53the last decimal point. We're actually
1:55making money on these incremental
1:58changes right here, and we are betting a
2:00proportion of our total trading account
2:04to these numbers, okay? So, as a
2:07currency changes maybe 0.1 or 0.2 or 0.5
2:11of a percentage each day, we can still
2:15make money by betting say 1% or 2% of
2:19our our total account balance against
2:21these two numbers here. And now you can
2:23start to see that there there's infinite
2:26opportunity because the financial
2:28markets are about 5.3 trillion dollars
2:31in volume traded every single day.
2:33They're gigantic. So, what trading is is
2:36speculation on price movement. Traders
2:39don't care what the asset is, they care
2:42whether the price will move up or down,
2:44and that's it. Imagine buying concert
2:46tickets before they sell out and then
2:47selling them later when the demand
2:49increases. A profitable trader isn't
2:51someone who predicts the market better
2:53than everyone else, it's someone who
2:56develops an edge. Now, an edge is
2:59something that I'm going to go over in
3:00this video briefly, but my definition of
3:02an edge is expectancy, knowing your
3:04expectancy, having discipline, having a
3:07game plan, a set of rules, and then
3:10having the emotional control to execute
3:12on that plan consistently. Now, the
3:15difference between trading versus
3:18investing, this is really important
3:20because beginners confuse the two.
3:22Investing is long-term, where you you're
3:25buying assets expected to grow over the
3:27years. For example, things like index
3:30funds or property retirement accounts.
3:32And what trading is, trading is shorter
3:35time horizons, focus on price movements
3:37rather than fundamentals. Trades can
3:39last minutes or hours, days, or weeks,
3:43whereas an investor might buy Apple
3:45stock and hold it for 10 years. A trader
3:48is using their skill to predict an
3:51incremental price movement and then
3:53speculating on that price movement over
3:55a short period of time. They want to get
3:57in and out and make money in the short
3:59term. So, the activity of an investor
4:01over a long period of time, an investor
4:03is looking to just get in and let the
4:05stock go up, whereas a trader is looking
4:06to make money like this on the way up.
4:10Now, before we actually talk about how
4:11traders make money, you first need to
4:14understand what actually moves markets.
4:17And in a moment, I'll show you what
4:19exactly what a real trade looks like,
4:21but let's talk about how markets move.
4:23So, the reason markets move is cuz
4:25there's buyers versus sellers. That's
4:27the foundation of price action. Price
4:29moves because of supply and demand. If
4:33more people want to buy than sell, then
4:35price rises. If more people want to sell
4:37than buy, then price falls. So, for an
4:39example, in an auction, someone offers
4:41£100, someone else offers £105, and
4:44another offers £110, the price
4:47moves up. And without getting too bogged
4:49down in mathematics, a simple supply and
4:51demand diagram here is if demand
4:56increases moving this way, okay, then
5:00the price gets higher, right? Now, if
5:04supply increases and goes this way, then
5:08price goes back down. And where supply
5:10and demand meet, that's what we call
5:12equilibrium. But if demand goes up like
5:14we have here and supply goes down and
5:17goes backwards to here, that's when the
5:20price is at its highest. Basically, all
5:22supply and demand is is buyers versus
5:25sellers bidding on the best price at any
5:28single time. And if you imagine in the
5:29Forex market, this is going on at
5:31incremental levels across the globe,
5:33across every currency, every single
5:36second, which is quite difficult to
5:37comprehend, but all you need to
5:38understand is there's tons of
5:40opportunity. Now, when you add on top of
5:42this the fact that there are the
5:44different participants like hedge funds
5:46and institutions and retail traders and
5:49you have to understand that retail
5:51traders are really tiny compared to
5:53these big institutions that actually
5:54move the majority of the markets. And
5:57the beautiful thing is you don't have to
5:58understand any of this. Trading looks
6:00complicated, but it's not. You don't
6:02need to understand economics to
6:04understand trading. You just have to
6:06understand a few simple things. The
6:08first thing is charts. So this is where
6:10beginners usually feel overwhelmed. So
6:13what you want to do is you want to start
6:14simple. A chart is simply a visual
6:16representation of price movement over
6:20time. The vertical axis up here is the
6:22price and the horizontal axis is time.
6:25Now, depending on what chart you're
6:27looking at, if this is the daily chart,
6:30then each of these candlestick sessions
6:33represents one day.
6:35Okay? So each of these is one day.
6:38If this is the hourly chart, then each
6:41of these candlesticks represents one
6:43hour. And each of the candlesticks tells
6:45us a story of what's happened during
6:47that session. And there's four pieces of
6:49information you need to know. So this
6:52green candle here, we have an open, a
6:55close, a high, and a low. Okay? So this
6:58is the open, this is the close, this is
7:01the high, this is the low. On a red
7:02candle, it's the same thing except it
7:04just means that the bearish candle or
7:07the the the downward candle where we had
7:09a downward movement session, okay? Means
7:13that the close is down here. And we
7:16opened higher than we closed, so we have
7:17the open.
7:19And then we have the high, and then we
7:20have the low, and then we have the
7:21close. So this is the open, this is the
7:23close. Exact same information, just the
7:26open and the close is different because
7:28a green candle means we closed higher
7:30than we opened, and a red candle means
7:32we closed lower than we opened. Now, if
7:34you see candlesticks like this for
7:36instance, it's still the same
7:37information. You still got the high
7:39here, the low here, we got the open
7:41here, and the close here. And on this
7:43red candle, we still got the high here,
7:45the low here, the open here, and the
7:47close here. And the reason candles form
7:50in different shapes is because they tell
7:51us a story. So, if this is a downward
7:54move, what we've seen here during this
7:56session, let's just say this was a a
7:58daily session, during the day, price
8:01pushed up,
8:02and then it got pushed down, and we
8:03closed right down here. Okay, which can
8:06represent a bearish pressure, which
8:08means we're likely to push down
8:10following that candle. Same on the
8:12green. If this was 1 day, what happened
8:15here is the price pushed down, and then
8:18the bulls pushed up. And we had a
8:20rejection to the downside, which means
8:22on the next day, we're likely to see a
8:24move up, cuz it tells us a story. Now,
8:26an important concept that you need to
8:28grasp here is markets move in patterns
8:31and trends. In fact, all trading is is
8:35pattern recognition with a set of rules
8:38applied to it, and then some discipline
8:40to trade those rules. And these patterns
8:41happen frequently. There's tons of these
8:43patterns going on every day, and you can
8:45just pinpoint one pattern, and you just
8:48go and trade that with military
8:50precision. Okay, so let's take a look at
8:52what a trade actually looks like. Now, I
8:54use a four-step process called IPDE.
8:57When I'm looking at a trade setup, I use
8:59a IPDE process, which stands for
9:01identify, predict, decide, execute. And
9:05that just keeps me very objective in
9:07these subjective markets. Now, the
9:09purpose of the I is to form a bias or a
9:13thesis, basically looking at the market
9:16and seeing what it's doing overall, what
9:19it's done recently, what it's likely to
9:21do next, and then the prediction
9:24is how it's likely to go there, okay?
9:27How it's likely to move. So, first of
9:29all, you open up a chart, and you might
9:31look at the pound dollar, and you say,
9:33"Okay, I think this is going to go up."
9:36Now, when markets move up, they either
9:39go straight up or they have a pullback
9:42and then they go up. So, the next step
9:44in the I IPDE is decide and this is
9:47where you're looking at your setup.
9:49Where what setups do you have? What set
9:52of rules do you have that you can pull
9:54out of your trading toolbox that will
9:56allow you to get involved here or here.
9:59So, you can catch the straight move up
10:01or the pullback. And once the rules
10:04of these are met,
10:05this is where you have rules for these
10:07setups. Once the rules for those are
10:09met, then you look at getting your entry
10:11criteria met and then you execute the
10:14trade, which is E.
10:16Execute. So, you're basically deciding
10:19the direction by yourself, you're
10:21choosing an entry point, you're setting
10:22your risk, you're setting your target,
10:24and then you execute the trade. So,
10:26let's just say on the pound-dollar here,
10:28you're expecting the price to move up
10:31and the current price is 1.2500.
10:34Remember, we're looking at these last
10:35two decimal points, this is going to be
10:37one pip, this is going to be 10 pips,
10:39and those tiny little movements is how
10:41we're going to make the money. And we're
10:42going to predict that the market's going
10:44to go up and we're going to set a profit
10:45target at 125
10:4720. So, 12520.
10:51Now, let's just say we execute our
10:52trade, the market pushes up, we trigger
10:54our 1.2520,
10:57and we take 20 pips off the table, we
11:00bank that, and the amount that you earn
11:02on that trade will depend on how many
11:05pounds or dollars or euros you bet on
11:08every single one of these pips. So, if
11:11you bet one pound per pip, you'd walk
11:13away with 20 pips. If you bet 10 pound
11:15per pip, you'd wake walk away with 200
11:17pounds. Now, let's talk about risk
11:20versus reward. Now, risk reward is going
11:22to be a really important part of your
11:24trading plan because a lot of traders,
11:26when they go into trading, they think
11:28about being right a lot and they want a
11:30high strike rate, a high win rate, when
11:32in actual fact, another massive
11:34component to your
11:36overall performance as a trader, your
11:38profitability as a trader, is going to
11:40come down to your reward to risk
11:41profile. And the higher the reward to
11:43risk profile, actually the lower the
11:45strike rate. Now, I'm going to show you
11:46a chart in a moment that's going to give
11:48you a real good reference on all this
11:50stuff. But, the way risk reward works is
11:53is how much you're betting or risking in
11:55your account and how much you're gaining
11:58on any one trade. So, for instance, if
12:01you're entering here and your your stop
12:03loss is here, where you're going to
12:04accept that you're wrong and your
12:05target's here, this is about a two to
12:08one, okay? So, this is a two to one
12:10reward to risk profile. If you're
12:12entering here and your stop loss is here
12:14and you're buying and your target's
12:16here, this is more kind of a a one to
12:18one. Now, if you're selling an
12:20instrument or a a currency and this is
12:23your risk and this is your reward, this
12:25might be a five to one, which means that
12:27when you're right, you're going to win
12:28five times the amount that you lose when
12:31you're wrong. So, if you've risked 1% of
12:33your account balance here, this means
12:35that this is going to be 5%. If you've
12:37risked 2% of your account balance here,
12:39this is going to be 2%. And if you've
12:41risked 1% of your account balance here,
12:43this is going to be 2%, right? Now, if
12:45your trade setups look like this,
12:48your strike rate will be lower, okay? If
12:51your trade setups look like this middle
12:52one, your strike rate will be a bit
12:53higher. And actually, if you look at
12:55this diagram here that I've put on the
12:56screen, you're going to see that you
12:58want to be about a 55
13:0160% trader. That's going to be realistic
13:03for you. That's where you're going to
13:04have the most opportunities. You're
13:06going to be right more than you're wrong
13:07and you're going to win more when you're
13:09right than you lose when you're wrong.
13:11And that kind of
13:12is comfortable for most people. Now,
13:14when you're weighing all this up in your
13:15trading system, the other thing you want
13:16to understand is probability. The
13:18probability of being right. And all
13:20probability is is the number of
13:22favorable outcomes divided by the number
13:24of total outcomes. And in order to know
13:26that, you have to test variables. So,
13:29you have to have a strategy that's
13:32got an edge already, and then you have
13:33to take that into the market, and then
13:35you have to test it, and you have to
13:36find these figures out for yourself.
13:38This is the bit here that most traders
13:41fail to do because they can't be
13:42bothered, or they can't believe that you
13:44have to do that, and they think there's
13:45another way, and that's the reason that
13:47most people fail. Now, the other main
13:49reason people lose at trading, which is
13:51what we're going to talk about right
13:52now, is down to three main things. One,
13:56they don't have the tools, okay? So,
13:58they don't have the right They're not
14:00using the right platforms, they don't
14:02have the right access to a decent
14:04broker, they don't know how to use
14:06indicators and things like that, they
14:08don't have access to those things to
14:10give them that edge. Number two is
14:12accountability, so they over-leverage,
14:14they over-trade, they risk too much per
14:17trade, they're forcing trades, they're
14:19in trades that they shouldn't be in, and
14:21then the other one is a strategy. They
14:23don't have a strategy with an edge. So,
14:24what they usually trying to do is
14:26they're trying to get rich quickly, they
14:28fall into a leverage trap, they've got
14:30small accounts, they're using huge
14:32leverage, they have a thousand-pound
14:33account or a thousand-dollar account,
14:35they're risking five hundred pounds per
14:36trade, and that leads to rapid account
14:39blow-up. At this point, I want to say
14:41trading is a skill, it's not gambling.
14:43And just like flying a plane or
14:45performing surgery or playing
14:48professional sports, it requires some
14:50effort and some work and some
14:52discipline, which leads us nicely onto
14:54the right way to learn. Now, there's six
14:57steps that I recommend you go and do
14:58from here.
14:59The first one is learn market charts,
15:03okay? You need to learn how to read
15:05charts and how to read price action. The
15:08second one is building a trading
15:10strategy or learning a trading strategy
15:12that has an edge already. The next thing
15:14is to go and test that and demo that so
15:17that you can verify and repeat the
15:19process of that strategy. The next step
15:22is to learn risk management, how to
15:23apply all of this stuff to that trading
15:26strategy so that you win more when
15:28you're right than you lose when you're
15:29wrong, and you're right more than you're
15:31wrong, and you protect your capital in
15:33drawdowns, and you boost your position
15:35size in winning streaks. Then, you track
15:38and journal everything you do. What gets
15:40measured gets mastered. And then
15:42finally, you use that data to improve
15:45and optimize your performance as a
15:46trader, and that cycle continues on and
15:49on and on, and it never ends. You don't
15:51just one day get to the point where
15:53you're profitable, and then you sail off
15:55into the sunset and never have to do any
15:56work again. This is a
15:58This is a continuous
16:00cycle of refinement, optimization,
16:03effort, and like maintaining your
16:08edge. But, the key mindset is you have
16:10to think like a business owner, not a
16:12gambler. Each trade is one small
16:15business decision. Trading isn't about
16:17predicting the future, it's about
16:18managing risk in an uncertain market.
16:21And I want to reinforce that in order to
16:23do well at this, you need patience,
16:25discipline, you need to develop a skill,
16:28and then you need to execute on that
16:30very, very consistently. If you're
16:31serious about learning trading properly,
16:34I've created a full beginner road map
16:36video that you should go and watch next.
16:38I'll put the link right here. And also,
16:39if you want to continue down this path,
16:41the next thing you have to understand so
16:43that you don't make these mistakes is
16:44the seven big reasons why traders fail
16:47so that you don't. You can go and watch
16:49that video here. And until next time,
16:51take care, and I'll see you in the next
16:52one.

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