Never risk more than 1–2% of your total portfolio on a single trade. This means if you have $50,000, a single position should only expose you to a $500–$1,000 loss at your stop-loss level. Position sizing is the #1 factor that separates traders who survive from those who blow up. Fixed fractional sizing (risking a set % per trade) and the Kelly Criterion are two common frameworks.

A stop-loss is a pre-planned exit price that limits your downside on any trade. Set it before you enter the position — not after you start losing. Common methods: technical stops (below support), volatility-based stops (1.5x ATR), and time stops (exit if the thesis hasn't played out in X days). Moving your stop further away to avoid getting hit is how small losses become account-ending losses.

Only take trades where the potential profit is at least 2–3x the potential loss. If your stop-loss is $500 below your entry, your profit target should be $1,000–$1,500 above it. A trader can be right only 40% of the time and still be profitable with a 2:1 or 3:1 risk/reward setup. This is the mathematical edge that keeps you in the game.

Technical analysis studies price and volume patterns to forecast future moves. Key tools: support/resistance levels (where buyers/sellers historically step in), trendlines, moving averages (20-day for short-term, 50-day for intermediate, 200-day for long-term trend), and volume confirmation. Patterns like head-and-shoulders, flags, and triangles help identify potential breakouts or reversals.

Common chart patterns include: Cup and Handle (bullish continuation), Double Top (bearish reversal), Ascending Triangle (bullish breakout), Head and Shoulders (bearish reversal), and Bull Flag (continuation after a strong move). Patterns work best with volume confirmation — a breakout on heavy volume is more reliable than one on light volume. Always wait for confirmation before acting.

A golden cross (50-day MA crossing above 200-day MA) is a long-term bullish signal. A death cross (50-day below 200-day) is bearish. Shorter timeframes use 9/21-day crossovers for swing trades. These lagging indicators work best in trending markets and produce false signals in choppy, range-bound conditions. Always pair with volume and price action confirmation.

RSI measures momentum on a 0–100 scale. Readings above 70 suggest overbought conditions (potential pullback), below 30 suggest oversold (potential bounce). Divergence — when price makes a new high but RSI doesn't — can signal weakening momentum. RSI works best in sideways markets; in strong trends, it can stay overbought or oversold for extended periods.

MACD shows the relationship between two moving averages of price. The MACD line crossing above the signal line is bullish; crossing below is bearish. Histogram bars shrinking indicate slowing momentum. MACD is a lagging trend-following indicator — great for confirming direction, not for timing exact entries. Works best when combined with support/resistance levels.

Volume validates price moves. A breakout on heavy volume is strong; a breakout on low volume is suspicious. Rising volume on up days with falling volume on down days = accumulation (bullish). The opposite = distribution (bearish). Volume profile shows where most trading occurred (value area) — prices tend to revisit high-volume nodes and reject from low-volume zones.

Support is a price level where buying pressure historically absorbs selling. Resistance is where selling pressure overwhelms buying. The more times a level is tested, the stronger it becomes. When support breaks, it often becomes resistance (and vice versa). Round numbers (psychological levels) and previous highs/lows are natural support/resistance zones.

The core idea: buy what's going up, sell what's going down. 'The trend is your friend.' Trend followers use moving averages, breakout systems, and momentum indicators to ride established trends. They accept small losses when wrong and let winners run. This approach requires discipline to cut losers quickly and not fight the prevailing direction of the market.

Mean reversion bets that prices returning to their historical average. Traders look for oversold bounces (RSI < 30, price far below moving average) or overbought pullbacks. This works in range-bound markets but is dangerous in strong trends — 'catching a falling knife' can lead to massive losses if the trend continues. Tight stops are essential.

Buy when price breaks above a defined resistance level with volume. The theory: once resistance is cleared, there's less supply overhead and the stock can run. Entry is on the break, stop-loss goes below the breakout level (which should now act as support). False breakouts (fake-outs) are common — wait for a daily close above resistance before committing.

Hold positions for days to weeks, capturing 'swings' within a larger trend. Swing traders typically use 4-hour to daily charts, focusing on intermediate moves. The goal is to catch the meat of a move, not the exact bottom or top. Requires less screen time than day trading but more patience than scalping. Position sizes are usually smaller than buy-and-hold but larger than day trades.

Open and close positions within the same trading session. Day traders use 1-minute to 15-minute charts, focusing on intraday volatility. Patterns include opening range breakouts, VWAP bounces, and fading parabolic moves. Requires intense focus, fast execution, and strict risk management. Research from academic studies shows that 70–90% of day traders lose money consistently.

Practice trading with fake money before risking real capital. Most brokers offer paper trading accounts that mirror live markets. Use this to test strategies, learn platform mechanics, and build discipline. A common rule: be profitable for 3 consecutive months in paper trading before going live. If you can't win with fake money, you won't win with real money.

Every trade needs a plan written before execution: entry price, stop-loss, profit target, position size, and time horizon. 'Plan the trade, trade the plan.' Emotional decisions — revenge trading after a loss, FOMO chasing a move, or moving stops to avoid a loss — are how accounts get destroyed. Your plan is your protection against yourself.

Record every trade: setup, entry, exit, profit/loss, and emotional state. Review weekly to spot patterns in your mistakes. Are you cutting winners too early? Holding losers too long? Trading when bored? The trader who journals improves 10x faster than the one who doesn't. Data about your own behavior is more valuable than any indicator.

Overtrading — taking too many positions or trading too frequently — bleeds capital through commissions, spreads, and forced setups. Quality beats quantity. A good trader waits for A+ setups. Set a maximum number of trades per day/week. If there are no good setups, do nothing. Cash is a position. Not trading is a valid decision.

Fear and greed are the enemy. Fear causes premature exits; greed causes ignoring stop-losses. After a win, confidence can lead to oversized positions. After a loss, anger can lead to revenge trading. Set hard rules: no trading after 3 consecutive losses, no increasing size after a big win, and always stick to your plan. Trading is 80% psychology and 20% strategy.