What is trading?
Trading means buying and selling financial instruments — like currencies, indices, stocks, or crypto — to profit from changes in their price. You can profit when price goes up (going "long") or when price goes down (going "short").
Most beginners start with one of these markets:
- Forex — currency pairs like EUR/USD. Open 24/5, very liquid.
- Indices — baskets of stocks like the US100 (Nasdaq) or US30 (Dow).
- Crypto — Bitcoin, Ethereum, etc. Open 24/7, very volatile.
- Stocks & commodities — individual companies, gold, oil.
You access these through a broker (or, as we'll see later, a prop firm) that gives you a platform to place trades. Your job is to find situations where the odds are slightly in your favour and to manage your money so the losers stay small and the winners can run.
Trading is hard. Most beginners lose money. There is no strategy with a 100% win rate, and "get rich quick" is how accounts get blown. Treat this as a skill that takes months and years — not a lottery ticket.
The core concepts
Before your first trade, get comfortable with this vocabulary — it shows up everywhere:
Position size & leverage
Position size is how big your trade is. Leverage lets you control a large position with a small deposit. Leverage magnifies both profit and loss — it's the single fastest way beginners blow accounts. Bigger size is not "more opportunity", it's more risk.
Pips, points & ticks
These are the smallest standard units a price moves in (pips in forex, points/ticks in indices and futures). Your profit or loss = how far price moved × your position size.
Spread & commission
The small cost of entering a trade — the gap between the buy and sell price, plus any commission. It's a real cost that eats into frequent trading.
Risk:reward & the "R" multiple
If you risk $100 to make $200, that's a 1:2 risk:reward, or "+2R" if it wins and "−1R" if it loses. Thinking in R instead of dollars keeps you objective. A trader can win less than half their trades and still be profitable if winners are bigger than losers.
You don't need to be right often. You need your winners to be bigger than your losers, and to survive the losing streaks. That's the whole game.
Risk management — the most important chapter
If you only master one thing, make it this. Strategy gets you in; risk management keeps you alive long enough for your edge to play out.
- Risk a fixed small % per trade. Most pros risk 0.5–2% of the account on any single idea. Risk 1% and you can lose 10 trades in a row and still have 90% of your account.
- Always use a stop loss. Decide where you're wrong before you enter, and let the stop take you out without emotion.
- Size from your stop, not your gut. Your position size should be calculated so that hitting your stop = your fixed % risk. (Use the calculator below.)
- Understand drawdown. A drawdown is the drop from your account's peak. The deeper the hole, the harder to climb out — a 50% loss needs a 100% gain to recover.
No moving your stop loss further away to "give it room". No adding to losers. No risking 20% on one trade because you "feel" it. These habits end accounts.
Reading the chart (the basics)
There are two broad ways traders analyse markets, and most use a blend:
Technical analysis
Studying price on a chart — trends, support & resistance levels, candlestick patterns, and indicators. The idea is that price action reflects everything and tends to repeat.
- Trend — is price making higher highs (uptrend) or lower lows (downtrend)? Trading with the trend is easier than fighting it.
- Support & resistance — price levels where the market has reacted before and may react again.
- Candlesticks — each candle shows the open, high, low and close for a period, telling a story of who's in control.
Fundamental analysis
Studying the "why" — economic data, interest rates, news, earnings. Even pure chart traders should know when high-impact news is scheduled, because volatility around news can blow through stops.
Don't drown in 15 indicators. Pick a clean chart, learn trend + support/resistance deeply, and add complexity only when you understand the basics.
Building your trading plan
A trading plan turns gambling into a process. Yours should answer, in writing:
- What do I trade? One or two markets to start.
- What's my setup? The exact conditions that make you enter. One A+ setup, mastered, beats ten you half-know.
- Where's my stop and target? Defined before entry.
- How much do I risk? A fixed % per trade and per day.
- When do I stop for the day? e.g. after 2 losses or hitting a daily loss limit.
Then backtest it (check it on past data) and journal every live trade so you can review what's actually working.
I built a free trading journal in the same style as this guide — log trades, see your win rate, profit factor and equity curve. Grab it and start reviewing your own data.
Trading psychology
Your biggest opponent is you. The setups are simple; following them under pressure is not.
- Revenge trading — trying to instantly win back a loss. It usually doubles the damage. After a loss, step away.
- FOMO — chasing a move you missed. There is always another trade.
- Overtrading — boredom trades and forcing setups that aren't there.
- Moving the goalposts — widening stops, cutting winners early out of fear.
The fix is mechanical: a written plan, fixed risk, a pre-trade checklist, and a journal you review weekly. Discipline beats motivation.
What is a prop firm?
A proprietary trading firm ("prop firm") trades with its own capital. The modern retail model lets you trade the firm's money instead of your own: you prove your skill, they fund you, and you split the profits.
In return for trading their capital, you keep a share of the profit you generate — often a profit split in the region of 70–90% to the trader, with the rest to the firm (exact splits vary by firm and plan). The appeal for beginners: you can potentially trade larger size without risking your own savings.
Most challenge models charge an upfront fee and most people who attempt them do not pass. A prop account does not remove the need for skill and risk management — it adds strict rules on top. Treat the fee as a cost that you might lose.
How a prop firm challenge works
Most firms ask you to pass an evaluation / challenge (sometimes one phase, sometimes two) before giving you a funded account. The common building blocks — note that exact numbers vary a lot between firms:
- Profit target — a % you must reach (commonly around 8–10% in phase one). Reach it without breaking any rule and you advance.
- Max daily loss / daily drawdown — the most you may lose in a single day. Breach it once and you typically fail instantly.
- Max overall drawdown — the most your account may fall from its starting (or peak) balance overall. This can be static or trailing.
- Minimum trading days — you often must trade on a minimum number of days, so you can't pass on one lucky trade.
- Consistency / other rules — some firms limit how much of your profit can come from one day, restrict trading around news, or limit certain strategies.
Pass everything and you reach a funded account, where you trade firm capital and request payouts of your profit share on a schedule.
The daily drawdown kills more challenges than anything else. Knowing your exact daily loss limit in dollars — and stopping well before it — is what separates people who pass from people who re-buy.
How to actually pass a challenge
- Risk tiny. Risking 0.5–1% per trade gives you room to survive a losing streak inside the drawdown limits. The profit target is reached by consistency, not by one big bet.
- Respect the daily loss limit. Set a personal stop well below it — e.g. stop trading at half your allowed daily loss.
- Don't rush the profit target. If there's no time pressure, slow and steady passes. Trade your A+ setups only.
- Know your numbers in dollars. Convert every % rule into an exact dollar figure before you start (use the calculator below).
- Trade the same way you'll trade when funded. Passing with reckless size just sets up a fail on the live account.
Common beginner mistakes
- Going live (or buying a challenge) with no tested plan.
- Risking too much per trade and ignoring the daily loss limit.
- Over-leveraging because the size "looks" affordable.
- Chasing news spikes and revenge trading after losses.
- Switching strategy every week instead of mastering one.
- Not journaling — so the same mistakes repeat forever.
- Treating prop fees like guaranteed income instead of a cost at risk.
Tools & calculators
Position Size Calculator
Size every trade so hitting your stop equals your fixed % risk.
Prop Challenge Calculator
Turn the firm's % rules into the dollar numbers that actually keep you in.
Glossary
Buying to profit from a rise / selling to profit from a fall.
The smallest standard unit a price moves.
Borrowed buying power that magnifies gains and losses.
An order that closes a losing trade at a preset level.
An order that closes a winning trade at a preset target.
How much you stand to make versus lose on a trade.
Profit/loss measured in units of your initial risk.
The drop from an account's peak balance.
Max you're allowed to lose in one day on a prop account.
The share of profits you keep on a funded account.
The test you pass to get funded.
An account trading the firm's capital after passing.
Your beginner roadmap
Master the core concepts and risk management above.
Keep it simple. Depth beats breadth.
Trade a demo account until your plan feels automatic.
Log every trade, review weekly, fix one leak at a time.
Show steady, low-risk results over many trades — not one lucky week.
Only once your risk management is boring and reliable.
Follow the journey
I share trades, lessons and the real ups and downs on Instagram. Come learn along the way.
@redotradez on all socials →