Time Frames – Most people understand the idea of gain and loss when talking about trading. However, it may be difficult to explain what happens over time in trading since many different things affect the market at every moment.
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Trading is all about making money by betting on whether an asset will go up or down. A trader buys security hoping that its price will rise to sell it for more than they bought it. They then make their money off the difference between buying and selling prices (called “the spread”).
If you think the price of something will rise, you will enter into an extended position; if you think its price will fall, you will place a short bet instead. Either way, your aim is always to maximize your gains while minimizing your losses.
Equal Value Placed
It is essential to know that as a trader, you need to have both legs covered. In other words, you have to have an equal dollar value bet placed on the opposite side of your position concerning whatever direction you intend ongoing in.
You can’t simply enter into a long or short position and hope for the best – this is what is commonly referred to as ‘betting on a market’. And it’s no different from someone putting their money down on a horse race without any knowledge of it whatsoever – they may be lucky sometimes. Still, ultimately, they’re most certainly going to lose over time, which is why betting for gain needs some research/analysis before making any move.
Going long
In trading, if you go long on security, that means that you buy it with the expectation of selling it at a higher price. So, let’s say you bought 100 shares of Microsoft for $30 apiece; your total outlay would come to $3,000. If Microsoft is trading for more than $30 per share when you decide to sell – say 40 for $40 – then the spread is the difference between buying and selling prices, which would have been $10 per share x 100 = $1,000. That leaves your gain at ($40-$30)x100 = $1000.
The difference is that you go long when you think the price will go up and short when you think it will go down. Either way, though, all the money made or lost is due to a change in price over time.
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Futures/Forex
The same can be said about trading futures or forex, where large movements might occur but only because something particular happened somewhere else, like an economic report coming out halfway across the world affecting your stock. Again, this is not the same as having a price change and would probably be more accurately referred to as gambling than anything else.
If you’re trading stocks, you must understand the time frame you’re working with because it will help maximize your gains and minimize your losses: that’s how things work.
1 Minute to monthly time frames
The different time frames range from 1 minute (concise term – used for scalping type moves) to monthly (very long-term – used mainly by institutional investors). The most commonly used ones are daily, weekly, and intraday. Most stock traders usually buy things one day and sell another or hold them overnight, depending on their outlook for the following day. They tend to take at least a few days, though, to get into trades and sometimes even weeks or months to build up positions that they’ll then hold for months or years.
In conclusion
The better you understand all this, the more likely it is that you will be successful in trading. Seeing moves before other people do is what makes them successful so take your time, don’t rush things, and always spend some time looking at different charts to see how different stocks behave depending on their price range – no stock follows the same pattern all the time.
Understand the reasons to trade or invest in ETFs and how exchange-traded funds can provide diversified exposure to different market segments.