Stock Market Trading Course

Choosing Your Trading Style

Your trading style should match your personality, available time, risk tolerance, and financial goals. Here are the main trading styles:

1. Scalping

• Time Frame: Seconds to minutes
• Holding Period: Very short—positions closed within minutes
• Goal: Capture small price movements many times per day
• Trades per Day: Dozens to hundreds
• Requirements: Fast execution, low commissions, high concentration, quick decision-making
• Tools: Level 2 quotes, time & sales, hotkeys

2. Day Trading

• Time Frame: Minutes to hours
• Holding Period: All positions closed by market close
• Goal: Profit from intraday price movements
• Trades per Day: 1-10+ trades
• Requirements: $25,000+ account (PDT rule in U.S.), screen time during market hours
• Tools: Real-time charts, scanners, news feeds

3. Swing Trading

• Time Frame: Daily/4-hour charts
• Holding Period: Days to weeks
• Goal: Capture larger price "swings" within trends
• Trades per Week: 2-10 trades
• Requirements: Patience, ability to hold through volatility
• Tools: Technical analysis, trend indicators, pattern recognition

4. Position Trading

• Time Frame: Weekly/Monthly charts
• Holding Period: Weeks to months
• Goal: Capture major market moves and trends
• Trades per Month: 1-5 trades
• Requirements: Strong fundamental analysis, patience, larger stop-losses
• Tools: Fundamental data, macro analysis, long-term technical analysis

Comparison Chart

Style	Time Commitment	Capital Needed	Stress Level
Scalping	Very High	$25,000+	Very High
Day Trading	High	$25,000+	High
Swing Trading	Moderate	$2,000+	Moderate
Position Trading	Low	$1,000+	Low

What are Derivatives?

Derivatives are financial contracts whose value is derived from an underlying asset, index, or rate. They allow traders to speculate on price movements or hedge existing positions.

Futures Contracts

A futures contract is an agreement to buy or sell an asset at a predetermined price on a specific future date.

• Standardized: Contract size, expiration dates, and settlement terms are standardized
• Exchange-Traded: Traded on regulated exchanges (CME, ICE, CBOT)
• Margin: Only a fraction of contract value required (typically 3-12%)
• Daily Settlement: Profits/losses settled daily (mark-to-market)

Popular Stock Index Futures

• ES: E-mini S&P 500 ($50 × index value per contract)
• NQ: E-mini NASDAQ 100 ($20 × index value per contract)
• YM: E-mini Dow ($5 × index value per contract)
• MES: Micro E-mini S&P 500 ($5 × index value per contract)

Options Contracts

An option gives you the right (but not obligation) to buy or sell an asset at a specific price within a certain time frame.

Call Options

• Give the right to buy the underlying asset
• Profitable when the asset price rises above strike price
• Maximum loss limited to premium paid (for buyers)

Put Options

• Give the right to sell the underlying asset
• Profitable when the asset price falls below strike price
• Maximum loss limited to premium paid (for buyers)

Key Options Terms

• Strike Price: The price at which the option can be exercised
• Premium: The price paid to purchase the option
• Expiration Date: When the option contract expires
• In-the-Money (ITM): Option has intrinsic value
• Out-of-the-Money (OTM): Option has no intrinsic value
• At-the-Money (ATM): Strike price equals current price

The Greeks

Metrics that measure options sensitivity to various factors:

• Delta: Sensitivity to underlying price change
• Gamma: Rate of change of delta
• Theta: Time decay—how much value options lose daily
• Vega: Sensitivity to volatility changes
• Rho: Sensitivity to interest rate changes

0DTE Options

Zero Days to Expiration (0DTE) options expire on the same day they're traded. They've become extremely popular but carry significant risks:

• High gamma means rapid price changes
• Low premium makes them accessible but risky
• Require constant monitoring
• Best used by experienced traders with strict risk management

1. The Foundation of a Trading Strategy

A trading strategy is a comprehensive plan that guides your entire trading process. Before looking at a chart, establish these core components:

• Define Your Goals: Set clear, measurable, and realistic financial goals (e.g., "15% annual return" not "get rich quick")
• Assess Your Time Commitment: Your available time dictates your trading style
• Determine Your Risk Tolerance: How much capital can you lose without affecting your lifestyle?
• Choose Your Market: Focus on markets you understand and can easily access

2. Finding and Forming a Strategy

You don't need to invent a new strategy. Learn and adapt established methodologies:

• Study the Basics: Master fundamental analysis (assessing intrinsic value) and technical analysis (predicting movements from past data)
• Explore Different Methodologies:
  • Trend Following: Capitalize on the idea that prices continue in their direction
  • Mean Reversion: Assume prices return to historical averages after deviations
  • Breakout Trading: Enter when price breaks out of a defined range
  • Momentum Trading: Trade in the direction of strong price movement

3. Technical Analysis Components

Technical analysis helps find high-probability entry and exit points:

• Support and Resistance: Price levels where the market historically finds buyers or sellers
• Chart Patterns: Visual formations that signal future direction (Head and Shoulders, Triangles, Flags)
• Technical Indicators:
  • Moving Averages: Smooth price data to identify trends (SMA, EMA)
  • RSI (Relative Strength Index): Identifies overbought/oversold conditions
  • MACD: Shows trend direction and momentum shifts
  • Volume: Confirms the strength of price moves

4. The Trade Management Plan

Document your strategy in a written plan—your rulebook to prevent emotional decisions:

• Entry Criteria: Define specific conditions that must be met to enter a trade
• Exit Criteria: Set clear rules including profit targets and stop-loss levels
• Position Sizing: Determine capital allocation per trade (typically 1-2% risk)
• Trading Journal: Record every trade to identify and correct mistakes

5. Backtesting Your Strategy

Before risking real money, test your strategy on historical data:

• Use at least 2-3 years of historical data
• Test across different market conditions (bull, bear, sideways)
• Calculate key metrics: win rate, profit factor, max drawdown
• Paper trade (simulate) before going live

The Two Pillars of Success

Risk management and trading psychology account for 80-90% of a trader's long-term success. While a good strategy helps identify setups, these two factors keep you in the game.

The Indispensable Role of Risk Management

Risk management ensures you can survive losing streaks and continue trading. The primary objective is capital preservation.

Core Risk Management Concepts

• Position Sizing (The 1% Rule): Never risk more than 1% of trading capital on a single trade.
  Example: $10,000 account × 1% = $100 maximum loss per trade
• Stop-Loss Orders: Automated orders to exit at a certain level, capping maximum loss. Removes emotion from exit decisions.
• Reward-to-Risk Ratio (RRR): Compare potential profit to potential loss. With 2:1 RRR, you can be wrong 60% of the time and still profit.
• Diversification and Correlation: Spread risk across different assets. Avoid trading multiple highly correlated assets simultaneously.

The Power of Trading Psychology

Even with the best risk management, emotions can derail a trader. Psychology refers to the mental patterns that influence trading behavior.

Common Psychological Traps

• Revenge Trading: Making impulsive trades after a loss to "win back" money. Almost always leads to further losses.
• Sunk Cost Fallacy: Holding losing positions because you've already invested time/money into them.
• Overconfidence: Abandoning risk rules after a winning streak (increasing size, removing stops).
• FOMO (Fear of Missing Out): Entering trades late because you don't want to miss a move.
• Confirmation Bias: Only seeking information that supports your existing view.

Cultivating a Winning Mindset

• Written Trading Plan: Your rulebook that replaces impulsive decisions with logical process.
• Trading Journal: Record your emotional state before, during, and after trades to identify behavioral patterns.
• Embrace Loss: Losses are a natural, unavoidable part of trading. The goal is profitability over a large sample size, not winning every trade.
• Process Over Outcome: Focus on executing your plan correctly, not on individual trade results.
• Take Breaks: Step away after big wins or losses to reset emotionally.

Daily Risk Limits

• Set a maximum daily loss limit (e.g., 3% of account)
• Stop trading for the day when limit is reached
• Consider reducing size after consecutive losses
• Review trades after stepping away

Market Microstructure

Understanding how markets work at a granular level:

• Order Flow: The stream of buy and sell orders that create price movement
• Level 2 / Depth of Market: Shows pending orders at different price levels
• Time and Sales (Tape): Record of all executed trades
• Market Makers: Entities providing liquidity by quoting buy/sell prices
• Dark Pools: Private exchanges where large orders are executed anonymously

Volume Analysis

• Volume Profile: Shows volume traded at each price level
• Point of Control (POC): Price level with highest traded volume
• Value Area: Range where 70% of volume traded
• Volume Spread Analysis (VSA): Relationship between price spread and volume

Advanced Chart Patterns

• Harmonic Patterns: Fibonacci-based patterns (Gartley, Butterfly, Bat)
• Elliott Wave Theory: Market moves in predictable wave patterns
• Wyckoff Method: Analyzing supply/demand through price and volume
• ICT Concepts: Institutional order flow, fair value gaps, liquidity pools

Sector Rotation

Different sectors perform better in different economic phases:

• Early Recovery: Consumer discretionary, financials, real estate
• Mid Cycle: Technology, industrials, materials
• Late Cycle: Energy, healthcare, consumer staples
• Recession: Utilities, healthcare, consumer staples (defensive)

Correlation Trading

• Intermarket Analysis: Relationships between stocks, bonds, commodities, currencies
• Pairs Trading: Going long one stock while shorting a correlated stock
• Sector Correlation: Understanding how sectors move together or diverge

Algorithmic Trading Basics

• Systematic Trading: Rule-based strategies executed consistently
• Backtesting: Testing strategies on historical data
• Automation: Using code to execute trades based on signals
• Key Metrics: Sharpe ratio, max drawdown, profit factor, win rate

Resources for Continued Learning

• Books: "Market Wizards" by Jack Schwager, "Trading in the Zone" by Mark Douglas
• Practice: Paper trading before risking real capital
• Community: Join trading communities to learn from others
• Mentorship: Consider learning from experienced traders