What is Trading Then?
Trading is a game of probability.
You will never know what the market will do next. Nobody does. But you can identify situations where the odds favour one outcome over another - and bet on those situations consistently.
Think of it like a casino, but reversed:
- A casino doesn't win every hand, but the odds are slightly in their favour
- Over hundreds of hands, that small edge adds up to guaranteed profit
- Trading works the same way - you need a small, consistent edge that plays out over many trades
Trading is about identifying, improving, and executing your edge over the market.
Buyers vs Sellers
At any moment, ask yourself: who is in control?
- Are buyers pushing price up with momentum?
- Are sellers pushing price down?
- Is neither side winning (consolidation)?
Your job is to assess the battle and get on the winning side. Don't fight the side that's in control.
Catching the Wave
Think of trading like surfing.
You're not creating the waves - you're watching for them, positioning yourself, and riding them when they come. When the wave ends, you get off and wait for the next one.
What this means:
- Look for moves that are already forming or about to form
- Get in, ride the move, get out
- If there's no good wave, stay out of the water
Traders are spectators first. They watch, they wait, and they act only when an opportunity appears.
Points of Interest
Traders look for specific price levels where something is likely to happen - places where buyers or sellers are likely to step in.
These include:
- Support and resistance levels
- Previous highs and lows
- Areas where price reversed before
These are the levels where you watch for setups, not random points on the chart.
How Do You Make Money?
The same principle as any business: buy low, sell high.
Two ways to profit:
-
Going Long (Buying)
- You buy at a low price
- Price goes up
- You sell at a higher price
- The difference is your profit
-
Going Short (Selling)
- You sell at a high price (borrowing the asset)
- Price goes down
- You buy back at a lower price
- The difference is your profit
Simple rules:
- If you think price will go up → Buy (go long)
- If you think price will go down → Sell (go short)
- If you're wrong, you lose money
3 Types of Analysis
There are three ways to analyse the market:
Fundamental Analysis
Looking at the underlying value - company earnings, economic data, news events, interest rates. Asks "what is this asset actually worth?"
Most useful for longer-term trades and understanding why big moves happen.
Technical Analysis
Looking at price charts, patterns, and indicators. Asks "what is price doing and what might it do next based on historical patterns?"
This is what most of your day-to-day trading decisions will be based on.
Sentiment Analysis
Reading the mood of the market - are traders fearful or greedy? Is everyone bullish or bearish? Sometimes the crowd is right, sometimes they're wrong.
Useful for understanding when moves might be exhausted or when everyone is positioned the wrong way.
Most traders focus primarily on technical analysis, with awareness of fundamentals for major news events. You don't need to master all three - but you should understand what each one is.
What Trading is NOT
Trading is not predicting the future.
Beginners try to forecast exactly what price will do. They say "the market will hit this target" or "this stock will go to $X."
Professionals think differently. They:
- Measure who has control (buyers or sellers)
- Follow the trend until it shows signs of ending
- Manage their positions based on what the market is actually doing
You're not a fortune teller. You're a probability manager.
Understanding Probability: The Core Truth of Trading
Trading is not about being right or wrong. It is purely about probability. The more you understand probability, the better trader you'll become. Trading is purely about the odds and the edge.
The Weighted Coin Analogy
Imagine you have a coin that is weighted to land on heads 55% of the time. You know that over a series of flips, on average, it will land on heads more than tails. But here's the crucial part: knowing that the coin is weighted 55% towards heads does not tell you which specific flip will be heads or tails. It just tells you that over a series of flips, there's an edge - a higher probability and likelihood for it to land on heads.
Trading works exactly the same way.
Why This Matters: The Emotional Trap
Here's where most traders go wrong. They attach an emotional response to what they see in the market and to their trades. They try to figure out which trade will be successful and which won't. They go so far as to say - and to act - that they only take trades they believe will be successful. And if they don't believe a particular trade will be successful, they won't take the trade at all.
But that's fundamentally flawed thinking. Would you refuse to flip the weighted coin because you thought this particular flip might land on tails?
Think about it in the context of the coin. You don't try to guess which flip will be heads or tails. You don't get frustrated or feel betrayed or disappointed when the coin lands on tails. Because you know over time, it's weighted to favour heads. There's no need for an emotional response to each individual flip.
The same applies to trading.
Process Over Outcome
You're not supposed to think. You're not supposed to assess each trade as if you can predict its outcome. You're supposed to carry out the process from start to finish with complete indifference to the result.
The process has to be appreciated as much as the outcome. As much as the destination. The process has to be carried out irrespective of the result. That's what every trader has to learn.
Traders get disappointed and feel betrayed when they assign some sort of certainty to their trades. They only take trades they believe will be successful. But it's not the job of a trader to believe in any one individual trade. The responsibility is to believe in a series of trades, over probability, over a long time horizon.
It's not about taking the next trade. It's about taking the next 20 trades.
The horizon has to be zoomed out. Less focus on each individual trade. More focus on trades overall. That is the responsibility of a trader.
Expecting to Lose
This understanding has a direct effect on expectations. Because now losing on some trades is actually expected.
Once you understand that your trading strategy is not a prediction but an edge, you lose that emotional response to events in the market. You stop feeling betrayed. You stop getting disappointed. You stop getting excited. And you just get on with your day, following the process through and through.
It's not a prediction. It's an edge. It's "if a weighted coin is flipped enough times, heads will come up more often than tails." You could get tails six times in a row, but that doesn't mean anything inherently. It doesn't change the fact that over time, probability determines you'll get heads more often than tails.
So it's not your responsibility to guess, to figure out, or to analyse which trades will be successful. It's your responsibility to follow the process from start to finish, irrespective of the outcome.
Each Trade is 50/50
Here's a liberating truth: each individual trade has roughly a 50% chance of winning or losing. But on a wider scale, that's where the edge comes into play.
Trouble also starts when relationships are assigned between trades. It's dangerous territory to say "because the last three coin flips were tails, the next one should be heads." That's not how probability works.
Likewise, creating relationships between trades is where disappointment starts. "The last trade worked. The last trade was successful. So therefore this one must also be successful."
Too much importance gets placed on each individual trade.
Every Trade is Unique
The exact same setup, the exact same price action, can have two very different results. When one setup gives a successful trade, and then the exact same setup appears again, a pattern is created in the mind. The assumption is that because it worked last time, it must work this time.
And that's where disappointment comes. That's where the feeling of betrayal comes. But it's all false. It's all fabricated.
Every trade is a completely unique circumstance. Relationships or patterns cannot be created between individual trades.
Trading is not gambling.
The majority of traders see it as gambling or a luck-based game. It's not.
Successful trading is not random efforts. It is a repetitive, systematic, and consistent system to give you an edge over random luck.
Positive Expectancy
This is the key to profitability.
Expectancy is the average amount you expect to make (or lose) per trade over time. It's calculated using your win rate and your average win size vs average loss size.
- Positive expectancy = Your system makes money over many trades
- Negative expectancy = Your system loses money over many trades
You can have a low win rate (e.g., only winning 40% of trades) and still be profitable - as long as your winners are bigger than your losers.
Example:
- You win 4 out of 10 trades (40% win rate)
- Your average win is $300
- Your average loss is $100
- Expectancy = (0.4 × $300) - (0.6 × $100) = $120 - $60 = +$60 per trade
That's a profitable system, even though you lose more often than you win.
Try it · Expectancy
The share of your trades that were winners.
Enter as a positive number.
Projects the average across a sample.
Converts R into money.
Expectancy per trade
+0.35Rper trade
Across this sample, an average trade returned +0.35R, or 0.35 times the amount you normally risk. Over 100 trades that adds up to +35R.
Expectancy describes results you have already had. It is not a forecast, small samples can be badly misleading, and it ignores costs unless you have included them in your averages.
Profit factor here is the expected gross profit divided by expected gross loss per trade at these averages.
How was this calculated?
- Loss rate = 100% − 45% = 55%
- Expectancy = Win rate × Average win − Loss rate × Average loss
- = 0.45 × 2 − 0.55 × 1 = 0.35R
The same idea applies to a whole record of trades. Enter the winners, the losers and the averages to see the win rate, expectancy, profit factor and break-even win rate together:
Try it · Strategy Statistics
Trades that closed at about zero. They count in the total but not as wins or losses.
Enter as a positive number.
Historical expectancy per trade
+$35.00per trade
Across these 100 trades, each one contributed an average of +$35.00 to the results, +$3,500.00 in total.
A strategy does not need a high win rate to be profitable. Winning 45% of the time works here because the average winner is 2× the average loser.
Results describe the past. A sample of a few dozen trades can look good or bad by chance, costs are not included unless they are in the averages, and none of this predicts future results.
How was this calculated?
- Trades = 45 + 55 = 100; win rate = 45 ÷ 100 = 45%
- Gross profit = 45 × $200.00 = $9,000.00; gross loss = 55 × $100.00 = $5,500.00
- Net result = $9,000.00 − $5,500.00 = +$3,500.00
- Expectancy = +$3,500.00 ÷ 100 trades = +$35.00
- Profit factor = $9,000.00 ÷ $5,500.00 = 1.64
This is why risk to reward matters. This is why you cut losers fast and let winners run.
Risk Management Rules
DO NOT TRADE REAL MONEY UNTIL YOU HAVE DISPLAYED CONSISTENT PROFITS!
No need to lose money unnecessarily. Paper trading is a great option. And even when you are ready for real money, start off only with a very small account.
A Note on Trading Strategies
There are many trading strategies out there. Here are some of the most common and popular ones:
- Price Action / Support & Resistance
- Supply and Demand
- Smart Money Concepts (SMC)
- ICT (Inner Circle Trader)
- Trend Following
- Breakout Trading
- Scalping
- Swing Trading
- Harmonic Patterns
- Elliott Wave
- Indicator-based strategies (Moving Averages, RSI, MACD, etc.)
Here's the truth: You just have to pick one.
You have to learn to be decisive. Just choose one and stick with it - even when it doesn't feel like it, even when you're unsure. You have to stick with it till the end.
Recommendation: Briefly research all the different strategies and choose the one that you understand the most, or that makes the most sense to you. Then stick with it to the end. Stick with it for a consistent amount of time and execute it consistently. If it doesn't play out after giving it a fair chance, then you move on to the next one.
Don't keep jumping between strategies. That's how you stay confused and never become profitable.
Next: Market Fundamentals
Now that you understand that trading is about managing probability, let's look at the mechanical engine that creates those probabilities.