Mike | The Lab
Published on
Jun 25, 2025
Have you ever heard the phrase “buy low, sell high”?
Well, that’s trading. Each opportunity where you buy an asset at a certain value expecting to sell it at a higher price falls under the umbrella of trading. The components involved can include stocks, commodities, currencies, and many more financial instruments.
How does it work?
While “buy low, sell high” is a common and intuitive concept, it’s not the only way trading works. There's also “sell high, buy low.”
The first one is straightforward, but the latter can be a bit tricky to grasp, so let’s break them down:
Buy Low, Sell High:
This is the classic trading approach, also known as longing. You acquire an asset at a certain price and sell it at a higher price, generating capital gains and a profit.
Sell High, Buy Low:
Known as shorting, this concept may seem less intuitive. It involves selling an asset you do not own, intending to buy it back later at a lower price.
For example: imagine you borrow an asset at a certain price, sell it immediately, then repurchase it later at a cheaper price and return it, obtaining the difference as profit.
Which markets exist?
There are many financial markets where trading occurs. Here are the major ones:
Stock Market:
The marketplace where shares of publicly traded companies are bought and sold.
Bond Market:
Focused on debt instruments issued by corporations or governments.
Commodities Market:
A marketplace for trading raw materials or primary goods often through spot or futures contracts.
Derivatives Market:
Involves financial instruments whose value is derived from an underlying asset such as stocks, bonds, commodities, or interest rates.
What are the different trading styles?
Trading styles refer to various approaches used to capitalize on price movements. Each style differs by time horizon, strategy, and risk profile:
Scalping:
A high-frequency, short-term trading style that aims to profit from small price movements. Trades typically last seconds to minutes and require precise timing and deep market liquidity.
Day Trading:
Involves opening and closing positions within the same trading day, with no overnight exposure. Traders capitalize on intraday volatility and use both technical setups and real-time catalysts.
Swing Trading:
Positions are held for several days to a few weeks. This style aims to capture “swings” in price momentum using technical analysis, pattern recognition, and sometimes macroeconomic context.
Position Trading:
A longer-term approach where trades may be held for weeks to months. Decisions are based on broader market trends, fundamental data, and macroeconomic cycles.
Investing:
The most long-term strategy, typically focused on underlying value rather than price action. Investors hold positions for years, seeking capital appreciation, dividends, or both, often based on company fundamentals and economic indicators.
Each style caters to a different type of trader, depending on their objectives, capital availability, and time commitment.
What causes price to move?
Price movement is a direct result of supply and demand dynamics, which are themselves influenced by several key factors:
Market liquidity
News and economic data
Institutional activity
Understanding these drivers is essential for anticipating price action and forming a strategic edge.
What is technical analysis?
Technical analysis is the study of price action and charts to interpret and forecast future price movements. It involves:
Price charts
Technical indicators
Volume and order flow
Market structure
Price action behavior
While it does not guarantee 100% accuracy, technical analysis provides a probabilistic framework to support informed decision-making in the markets.
