Key concepts

Section 01

A price is a print

A market is a place where bids and offers meet. The last price is the last trade that both sides accepted. It is not the market's opinion of fair value, and it is not a vote about tomorrow. It is evidence that, at that moment, a buyer and a seller agreed.

The bid is the highest price a buyer is currently showing. The ask, or offer, is the lowest price a seller is currently showing. You generally buy at the ask and sell at the bid. The spread is the ask minus the bid. Crossing it is a real cost, paid on the way in.

Section 02

Long, short, and flat

Long means you own it, or you hold a contract that gains if price rises. Short means you have sold something you will need to buy back, so you gain if price falls. Flat means you have no position. Flat is a position. It is the correct one when you do not have a written idea.

A short stock position borrows shares, sells them, and later buys them back. The buyback is the cover. If price rises without a limit, the loss has no natural ceiling. Borrow can be refused, recalled, or priced at a fee that changes. Futures, contracts for difference, options, and spot foreign exchange are different machines. Do not drag stock vocabulary across them without learning the contract.

Section 03

Orders

Slippage is the gap between the price you expected and the price you got. It is not a broker insult by default. It is what happens when your order demands more liquidity than the book is offering at that price. Spread, commission, borrow fees, and slippage are the toll. An idea that makes less than the toll is not an edge. It is a donation.

Section 04

Time frames

A candle on a one-minute chart and a candle on a weekly chart are the same four prices, summed over different clocks. They can disagree without either one being broken. A weekly uptrend can contain a daily downtrend. Pick the clock you can actually watch, and say which clock is allowed to veto the other. Hoping every clock will agree is how people freeze, then chase.

Section 05

Trend, range, and noise

In swing structure, an uptrend is a series of higher highs and higher lows. A downtrend is lower highs and lower lows. A range is price oscillating between two areas. Inside all three, there is noise: movement smaller than the costs and the ordinary wiggle of that market.

Support is an area where declines have stalled before. Resistance is an area where rallies have stalled before. Draw them as zones. A line to the tick feels precise and is usually a story you are telling with a ruler. After a break, the old zone sometimes changes roles. That is a common observation. It is not a contract.

Volatility is how much price moves, not which way. A quiet market and a violent market can have the same direction and completely different risk. Average true range, covered with the indicators, is one way to measure that width. A fixed percentage stop ignores it.

Section 06

Risk, in one page

One R is the money you will lose if your stop is filled as planned. It is the unit of the trade. If you risk 50 in account currency and you make 100, the trade returned +2R. If the stop fills, the trade is −1R. If a gap blows through the stop and you lose 100, the trade is −2R. The plan said 1R. The market is allowed to disagree.

There is no correct fraction for every person. A run of losses is normal even in a good process. Risking a large slice of the account on one idea turns a normal run into a hole you cannot climb out of. Many process-driven traders cap a single idea near a quarter of one percent to one percent of equity. Alexander Elder popularized a two percent personal cap. Those are survival choices, not market laws. The desk does the arithmetic and shows the warning. You still choose the number.

Section 07

A description is not an edge

An edge is a positive expectancy after costs, measured on trades you actually take, under rules you froze before you saw the result. A named candle is a description. A moving average is a description. A compelling story about a company is a description. Descriptions can be part of a hypothesis. They become an edge only if the full rule, including the losses, pays for itself often enough to beat the toll.

Section 08

Trading is not investing

Investing, in the Benjamin Graham sense, is buying something for less than a careful estimate of its value and holding through noise because the value is the point. Trading, as this manual uses the word, is a ruleset for entering and exiting price movement, often with no claim about the business. Mixing them produces the worst of both: a trade you refuse to exit because you have promoted it to an investment, or an investment you manage like a scalp. Pick one job for the position.