1.1What Is Trading?
- ·What a long and a short position actually represent
- ·The five questions every trade must answer
- ·Why risk is defined before opportunity
- ·Why trading is probabilistic, not predictive
Trading is the process of attempting to profit from changes in the price of a financial instrument. A trader can potentially profit from rising prices by taking a long position, or from falling prices by taking a short position.
Professional trading is more complicated than simply deciding whether something will go up or down. A trader must answer five questions:
- 01What am I trading?
- 02Why am I trading it?
- 03Where am I entering?
- 04Where am I wrong?
- 05How much am I willing to lose?
The fifth question is often more important than the first four.
Trading is a probabilistic activity. No setup guarantees an outcome. The objective is to identify situations where the potential opportunity justifies the defined risk.
Risk first. Opportunity second.
Two traders take the same long position on Gold. One defined an invalidation level and a maximum loss before entering. The other did not. Both may be right about direction — only one has a defined outcome if they are wrong.
Examples use historical or illustrative data only. They are not live market signals.
Write out the five questions and answer them for one instrument you are currently watching. If you cannot answer question four or five, you do not yet have a trade.
Which question is most often the deciding factor in whether a trade is professional?
A well-constructed setup guarantees a profitable outcome.
A trader enters short because 'the market feels heavy' and has no level that would prove the idea wrong. What is missing?
- 01A long position seeks profit from rising prices, a short from falling prices.
- 02Every trade should answer five questions before execution.
- 03Defined risk precedes assessment of opportunity.
- 04You do not need to predict every move — only to find conditions worth the risk.
Educational content only. Nothing here is financial advice or a recommendation to trade. Trading involves risk of loss, results vary between individuals, and past performance does not indicate future results. Only capital you can afford to lose should be exposed to market risk.