Grasping the basics

Many new traders will find the whole business of ‘understanding’ what’s going on to be mind-boggling. After all there is so much new terminology and concepts to put together. Charts often appear to be confused and even video materials seem so filled with jargon. All this could be real deterrent to new traders finding their feet or even persisting. The risk is that new traders forget about all that and just have a go. What’s likely to happen next is that there are heavy losses on demo accounts and then a conclusion is drawn that it’s all too risky, or not worthwhile.

Every field of expertise has it’s own concepts, ideas and jargon – medicine, law, business, social science, IT – they all do. Think about it. People just don’t become versed in their fields of specialisation over-night. It takes years of study and wrestling with complex concepts before they really know how to command situations in their sphere of acquired expertise. If you accept all that – and you want to persist and grow your knowledge, skill and expertise – then you have to master the basics. Knowledge is important – so you’ve got to know about things like: Price Action, Moving Averages, Fibonacci ratios, Stop-loss etc etc.

This page is not meant to teach. We don’t teach here. Only some important terms and sources of knowledge will be provided. It’s up to you to drive your own learning, if you truly want to succeed. There are many websites out there that explain these terms your starting point should be Investopedia.com. Of course just knowing what the terms mean does not give a full appreciation or depth of understanding. All that will come from experience of interacting with the markets, preferably on demo accounts first. The following basic lists will be updated from time to time. People often take for granted that they know what some of these terms mean because they appear to be so simple (especially in the primary list below) – but later on discover that actually they did not quite grasp them. I explain the nature of ‘understanding’ and offer some cautions.

So far you can see that it’s quite a lot of stuff to learn about. Each of the above is just a headline. There’s a whole lot of things associated with each of those.

The best part is, that it’s all free out there on the net. The worst part for some is that it requires time. But time is your major investment in the early stages – not the money. If you don’t grasp the above basic terms, how are you to follow what’s going on in educational videos? Very difficult. As in most things that are quite new, it’s baby steps first. No shame in that.

Caution on ‘understanding’

Many new traders believe that they have to understand much of the above before they start trading on demo accounts or other types of platforms. In ordinary life people like to know what they’re doing – else they tend to feel that they might become confused, or fail to get it right. I don’t believe that understanding much of the above has to come first. Why?

Understanding this particularly different business, comes quite a lot by interaction with the system – and by making mistakes. No – this is not simply trial and error. You could study candle sticks – know all about the various patterns but still not be able to spot them, or apply them. What’s does a long candle-stick wick mean in real terms? You have to see it in action – to ‘understand’. You’ve got to see how it actually works, in order to grasp what’s going on with the above key things.

Or look at a different example. You can know all about how a car works or drives – but until you actually drive the thing, you can’t really understand it. That’s why learner drivers are encouraged to study their basics and to do the business either on simulators or in a real car (under supervision). You can know that pressing the brake pedal stops the car but no manual can tell you how much pressure to apply – even if you have textbook knowledge of how brakes work. Similarly, for the accelerator, we know that pressing it moves the car forward and the more you press the faster the car will accelerate. However, what do you actually do with the accelerator is a different matter. Or the steering wheel – it turns the car – but how do you decide how much to turn it. Understanding these things requires interaction – it’s a richer form of understanding. I think it’s pretty useless for a learner drive to say, “I want to understand how the basics of cars work before I enter one to learn to drive.”

So my point is, do both – at the same time! Read, watch good videos and interact – that’s how you really get a grasp of the basics.