Congratulations on coming across this article, if you’re reading this you’ve probably considered or even decided to learn to trade. Deciding to learn to trade can be quite overwhelming when starting out, there’s a vast amount of information out there and it can very well lead to information overload. In this section of Learn to Trade, we’ll go into the basics of what kind of investment securities are out there that one could look into when deciding to learn to trade.
Learn to Trade Introduction
At the start of the trading game we first have to look at the key component which is PRICE. We have the word price in all caps because it puts emphasis on the importance of when you learn to trade that price is the one thing the moves the market. The importance of this is because whatever market you choose to trade, whether it be stocks, futures, foreign exchange, or any other product all, price is the amount a buyer pays to acquire a product from a seller.
When you learn to trade, knowing what moves price is the key component. Seeing that price moves and placing a trade or making an investment (even buying a product) based on the movement of the underlying – price in this instance, is being at the effect. We as traders who set out to learn to trade want to set out to understand the cause of the price movement and put us in a position to want to place that trade.
Understanding Price when we Learn to Trade
When we learn to trade, understanding what price is gives us the edge that we want as a trader. Yes, price is the dollar amount that is agreed upon between the buyer and seller that causes the transition to happen, but more importantly price for traders who learn to trade is understanding price happen from traders making buy and sell decisions. If this at first sounds confusing, you’re not alone. As we’ll break it down a little further as we look at understanding the nature of the markets. At it’s basic level, price movement is based on supply and demand.
Supply is the amount sellers want to sell which is at a particular price.
Demand is the amount buyers want to buy which is also at a particular price.
To reiterate price rises when there are no more buyers willing to pay a higher price and price falls until there is no more sellers willing to sell at a lower price. A perfect example here would be your typical auction house. Bidding keeps increasing until no other buyer want to buy and the reverse when there’s no other sellers willing to sell there treasured possessions. When you learn to trade, understanding supply and demand is at the heart of every transaction will give you an edge when most traders forget the basic fundamental rule and instead let there emotions get the best of them. Understanding that there are multiple buyers who are competing to buy against other buyers in the market, while multiple sellers are competing to sell into the market at all times when you learn to trade is the most important fundamental concept.
Learn to Trade a Bullish Position or Bearish Position
When you learn to trade there will be many concepts that might not make sense, but as you progress in your understanding you’ll start to become more familiar Such two popular concepts you might become more aware of then others are one being referred to as Bullish or Bearish. At it’s very basic level when you learn to trade, being bullish in your purchase or of the outlook of the market means people are buying more then they are selling, and when one is bearish, more people are not as optimistic about the market and don’t want to be holding onto their positions. When this happens, more people are selling or not buying at all, instead they are what they refer to as being on the sidelines holding their money, or being in all cash.
Buyers (also know as bullish in this context), are bidding on the ask price, while sellers (the side of the market who is bearish) is offering whatever it is there selling at the ask price. Understanding the basics when you learn to trade means there has to be an agreement between the bid price (buyers wanting to buy), and the ask price (sellers wanting to sell). Without this agreement, there is no transaction, no transaction means there is no movement in price, no movement in price means there is no cause for price movement.
This at it’s basic is how supply and demand work with bidding and asking (again also known as buying and selling). When prices rise, demand is great and supply is limited, so those buyers (traders who are bullish), will pay higher and higher prices. When price falls, supply is great and demand is limited, those who are selling (traders who are known to be bearish) will continue to sell at lower and lower prices.
This hopefully gives you a brief idea of supply and demand when you look to buy and sell. The makes up the basics when a trader sets out to learn to trade.