Trading strategy for beginners

Money is a promise: how money is really created — and why austerity backfires

Almost every major economy now runs on fiat money. Strip away the mystique and what you are left with is startlingly simple: money is a promise to pay, created out of nothing by just two kinds of organisation, and quietly destroyed again every day. Once you see how, the case against austerity becomes very hard to ignore.

All money is debt

We live under a fiat currency system — the arrangement now used by almost every money-creating jurisdiction in the world, including the UK, the USA and the eurozone. Under this system, money is not backed by gold or any other physical commodity. All that a unit of money represents is a promise to pay, which is otherwise called debt.

This has a profound consequence. Because money is a promise, every act of money creation must, by definition, record the creation of new debt between the two parties who give rise to that money. There is no money without a corresponding obligation. The note in your pocket and the balance in your bank account are someone else's liability — an IOU that has been made to circulate. £ I promise to pay the bearer ASSET to whoever holds it LIABILITY of whoever issued it Every pound is the same promise, seen from two sides of a ledger. Money is double-entry by nature: one party's asset is always another party's debt.

Only two kinds of organisation create money

The process is far less complicated than it sounds. Only two types of organisation can take part in transactions that create money:

The first is the government of a jurisdiction that issues its own fiat currency. The second is the network of commercial banks operating within that jurisdiction. That is the entire cast. Households, firms and everyone else can move money around, but they cannot create it. Understanding the difference between these two creators — and how each one's money is destroyed — is the key to everything that follows. Government CREATES BASE MONEY Treasury directs spending. Central bank makes the loan. Central bank reserves credited liquidity for the banking system. Money enters the economy, destroyed later by taxation. Commercial banks CREATE BROAD MONEY A bank makes a loan; no existing saver is needed. A new deposit appears, created at the keystroke Money enters the economy, destroyed later by repayment. Two creators, two kinds of money. The government issues base money; commercial banks issue the broad money most of us use every day. The two money creators at a glance  Government moneyCommercial-bank money Also calledBase money (central-bank reserves & cash)Broad money (bank deposits) How it is createdGovernment spending, financed by a central-bank loanBank lending — a loan creates a matching deposit How it is destroyedTaxation (and partly neutered by bond issuance)Loan repayment Main role: Provides liquidity so banks can settle with each otherProvides the day-to-day money used by the public Behaviour over the cycle: Can be counter-cyclical (a policy choice), Pro-cyclical (rises in booms, falls in slumps)

03How the government creates money

A government can create new money at will. It does so by instructing its central bank to make a loan to it in order to finance its expenditure. This is the source of all new government-created money — what economists call base money.

Base money does a specific job. It is the liquidity that allows the banking system of a jurisdiction to function, by providing the means through which a country's commercial banks settle their liabilities to one another. Practically, government-created money is injected into the economy via the central-bank reserve accounts that commercial banks are required to maintain with the central bank. When the government spends, those reserve accounts are credited; new money exists where none existed a moment before.

The crucial distinction

A government that issues its own free-floating fiat currency is a currency issuer. Households, businesses and local councils are currency users. A user must earn or borrow before it can spend. An issuer spends first — the money it spends did not have to be collected from anyone beforehand. This is precisely why the familiar "the country's finances are like a household budget" comparison is misleading: a household can never create the pounds it owes, but a sovereign issuer always can. (Note the contrast within the eurozone, where individual member states use the euro but do not issue it — leaving them in the position of currency users.)

04How government money is destroyed — and why tax doesn't fund spending

Government-created money is destroyed through the payment of tax. This single fact reorders almost everything most people assume about public finance.

Tax does not fund government spending. Money creation funds government spending. Taxation takes the money the government has created back out of circulation — and then destroys it.

If spending comes first and is financed by money creation, then taxation cannot logically be what pays for it. So what is tax for? Its primary economic purpose is to control inflation. By withdrawing money from circulation, taxation reduces the amount of spending power chasing the goods and services an economy can produce. Tax, in this sense, never funds anything: it cancels money creation. It is the off-switch that balances the on-switch of public spending. CREATED by spending CIRCULATES in the economy DESTROYED by taxation Spending switches money on. Tax switches it off. The cycle — not a fixed pot — sets the money supply. The life cycle of a government pound: created when it is spent, destroyed when it is taxed back out of existence.

05Bonds neuter money without destroying it

There is a third lever. Government-created money can also be effectively neutered by the issue of government bonds. When the government sells a bond, it locks the money used to buy it away from active use in the economy for a significant period — in the case of long-dated gilts, for years or even decades.

Bonds do not have the same outright effect as taxation: the money is not destroyed, only immobilised. But the practical impact is not far short of destruction, because for the duration of the bond that money — that debt — is locked out of circulation and cannot chase goods or bid up prices. It is best thought of as a savings account at the central bank: the money still exists, but it has been parked.

A real-world illustration

Quantitative easing runs this logic in reverse. When a central bank buys back its government's bonds, it swaps locked-away bonds for live, spendable reserves — reactivating money that bond issuance had parked. The fact that authorities can do this at scale, as they did after 2008 and again during the pandemic, is direct evidence that the supply of money is a matter of policy, not a fixed natural quantity.

06Commercial banks also create money

The second creator is the commercial banking sector. Banks take part in the money-creation process whenever they lend. Contrary to the textbook picture, a bank does not lend out money that savers have first deposited with it. Instead, the act of making a loan simultaneously creates a brand-new deposit in the borrower's account. The loan and the deposit appear together, from nothing.

This money is destroyed by loan repayment. As the borrower repays, the deposit shrinks and the money that was created vanishes again. This is not a fringe claim: it was set out plainly as a matter of fact by the Bank of England in 2014, when it explained that the great majority of money in the modern economy is created by commercial banks making loans.

Why this overturns the textbook

The old "money multiplier" story claimed banks simply re-lend a fraction of existing deposits, with the central bank controlling the total by setting reserves. The reality is the other way around: banks create deposits when they lend, and reserves adjust to accommodate them. Lending is constrained by the demand for creditworthy borrowing and by profitability and regulation — not by a fixed stock of pre-existing savings.

07There is no fixed stock of money

Put the two creators and their two forms of destruction together and a clear truth emerges: there is no fixed stock of money. The amount of money in circulation at any moment depends on the amount created by the government and the commercial banks, minus the amount destroyed by taxation and loan repayment. The national money ledger Money created (+)Money destroyed (−) Government spending (new base money)Taxation (cancels base money) Bank lending (new broad money)Loan repayment (cancels broad money) QE / bond buy-backs (reactivates parked money)Bond issuance (parks money, near-destruction)

Because the money supply is a running balance between these flows, controlling inflation logically requires the integration of tax policy and monetary policy. The two switches — spending and tax on one side, lending and interest rates on the other — have to be operated together if the price level is to be managed sensibly. Yet in practice they are run by separate institutions, on separate timetables, often pulling in opposite directions. The fact that this integration rarely happens is a major weakness within modern macroeconomics.

08Why austerity makes the cycle worse

Here the argument turns practical. Money creation by banks is pro-cyclical. When the economy is booming, banks lend more freely and therefore create more money, pouring fuel on a fire that is already burning. When the economy is sluggish, new borrowing dries up, and loan repayments tend to rise, so bank money is destroyed faster than it is created. Left to itself, the banking system amplifies the swings of the economic cycle in both directions. Time → BOOM SLUMP BOOM Bank lending Counter-cyclical government spending Bank lending (solid) swings with the cycle, deepening booms and slumps. Government spending (dashed) can lean against it — rising in the slump to keep money in the economy.

The implication is decisive. If the money supply is to be maintained across an economic cycle, the government has to spend more money into existence during downturns — precisely when banks are creating less and destroying more. Government money creation is the natural counterweight to the banks' pro-cyclical behaviour.

This is a major reason why austerity economics has been so counter-productive. By cutting public spending exactly when bank lending is already shrinking, austerity reinforces the pro-cyclical swing instead of offsetting it — and so exaggerates the very downturn it claims to address. Pro-cyclical banks vs the right policy response PhaseWhat banks doEffect on moneyRight government responseWhat austerity does Boom Lend more Money created Ease spending; let tax rise — Downturn Lend less; repayments rise Money destroyed Spend more into existence Cuts spending — deepens the slump

The accounting that makes it unavoidable

There is a further reason austerity bites so hard. In accounting terms, the government's deficit is the rest of the economy's surplus — pound for pound. When the state runs a deficit it is adding net financial assets to households and businesses; when it cuts that deficit through austerity, it is removing them. Trying to shrink the public deficit in a downturn therefore drains money out of the private sector at the exact moment it is least able to spare it.

The objections — and the answers

This account is not the one taught in most introductory courses, and it is worth meeting the standard objections head-on rather than ignoring them.

"If governments can just create money, why not abolish tax and spend without limit?" Because the real constraint was never the money — it is the productive capacity of the economy. Spend beyond what the economy can supply and you get inflation, not prosperity. Tax and bonds are the tools that keep that spending within bounds. The limit is real resources and inflation, not an empty Treasury account.

"Doesn't this ignore the risk of runaway inflation or a loss of confidence in the currency?" No — it puts those risks at the centre. The whole point of taxation, in this framework, is inflation control. The argument is not that constraints do not exist; it is that we have misidentified them, treating an imaginary funding constraint as binding while neglecting the genuine inflation constraint.

Critics from the orthodox tradition still dispute parts of this picture — particularly the political wisdom of loosening the link between spending and taxation, and the independence of central banks. Those are legitimate debates about how the levers should be used. But on the underlying mechanics — that banks create money when they lend, and that a sovereign issuer spends before it taxes — the operational description set out here is now widely accepted, including by central banks themselves.

Once you see money as a promise rather than a thing, the rest follows. It is created and destroyed continuously by just two players; it has no fixed quantity; and the job of policy is to balance creation against destruction so that prices stay stable and the economy stays employed. Judged against that job, austerity does not merely fail to help in a downturn — it actively makes things worse.

This article is an explainer on the mechanics of money creation under a fiat currency system. It describes how money is created and destroyed and the policy debates that follow; it is general commentary and not financial, investment or economic advice.

Forex & Stock Trading in 2026: The Complete Beginner-to-Intermediate Playbook

From reading your first currency pair to building a systematic trading business — everything the markets want you to figure out the hard way, laid out clearly.

Forex Strategy · Stock Markets · Trading Bots · Bull Markets · Exchange Structure · Risk Management

$9.6TDaily FX Turnover (BIS 2025)

$151TGlobal Equity Market Cap (WFE 2025)

92%S&P 500 gain this bull cycle (Oct 2022→)

74–89%Retail CFD accounts that lose money (ESMA)

Table of Contents

What Is Forex Trading? Markets, Structure & Scale

Forex Trading Strategy for Beginners

Stock Trading Explained — How Equity Markets Actually Work

Stock Trading Strategy — From Value to Momentum

Stock Trading Bot — Automation, MT5 & Expert Advisors

Stock Trading Bull — Bull Markets, Bull Flags & Trend Riding

Stock Trading Business — Prop Firms, Capital & Structure

Stock Trading Element — Building a Complete Trading Plan

Stock Exchange Trading — How the World's Exchanges Work

Your 4-Stage Roadmap: From Demo Account to Trading Business

There are two ways to learn the markets. The first is to deposit money, trade on instinct, and let the market teach you — expensively, sometimes catastrophically. The second is to understand the structure, mechanics, and tested frameworks before you risk a penny. This guide is the second way. It covers everything from what a pip is to how a prop firm's evaluation works, with real data, working diagrams, and the honest statistics that too many trading courses leave out.

⚠ Risk Disclosure Between 74% and 89% of retail CFD accounts lose money, according to ESMA's product-intervention disclosure framework. Even among pre-screened prop-firm traders, the published 2025 Topstep cohort shows only 0.71% of participants reaching the live-funded stage. Trading is a legitimate profession, but it is not a shortcut to wealth. Read this guide in full before putting capital at risk.

Section 01 What Is Forex Trading? Markets, Structure & Scale

The foreign exchange market — forex, or FX — is the mechanism by which one currency is converted into another. It operates as a decentralised, over-the-counter (OTC) global network, running 24 hours a day, five days a week, with no single central exchange. In April 2025 the Bank for International Settlements (BIS) Triennial Survey recorded daily turnover of approximately $9.6 trillion, a 28% jump from $7.5 trillion in 2022. To put that in perspective: the entire US GDP for 2024 was about $28 trillion, meaning the forex market trades roughly a third of that every single day.

Volumes are dominated by the US dollar, which appears on one side of 89.2% of all transactions — a figure that actually rose slightly from 88.4% in 2022. EUR/USD remains the single most traded pair, followed by USD/JPY. However, the composition is shifting: while the seven major pairs accounted for 85% of transactions in 2022, their combined share fell to 66.3% in 2025 as the renminbi, Australian dollar, and other currencies gained ground.

Who Is Actually Trading All That Volume?

A common misconception is that retail traders — individuals at their laptops — constitute a meaningful share of FX volume. They do not. The dominant participants are large international banks trading interbank; institutional asset managers and sovereign wealth funds hedging currency exposures on foreign stock and bond holdings; multinational corporations converting revenues; and central banks managing reserves. Retail speculative flow represents a small fraction of the total. This matters strategically: the market is not set up to accommodate retail traders, which is why most beginner strategies that fight the trend — rather than align with institutional flow — fail quickly.

Global FX Market — Participant Volume Breakdown (BIS 2025 approximation)

100% 75% 50% 25% 38% Dealer Banks 55% Institutional Funds 6% Corporate Hedgers ~1% Retail Speculative Approximate share of total $9.6T daily turnover

Section 02 Forex Trading Strategy for Beginners

The Core Vocabulary: Pips, Lots, Spread & Leverage

Before any strategy can be applied, four mechanical concepts must be second nature. A pip is the minimum standard price increment — the fourth decimal place on most pairs (EUR/USD 1.1000 → 1.1001 = 1 pip). For yen pairs it is the second decimal (USD/JPY 150.00 → 150.01 = 1 pip). A lot defines position size: 1 standard lot = 100,000 currency units; on a standard EUR/USD lot, one pip move equals approximately $10 profit or loss. Spread is the broker's cut — the gap between the buy price (ask) and sell price (bid); EUR/USD trades under 1 pip on ECN-style accounts, while exotic pairs like USD/TRY can carry spreads above 800 pips. Finally, leverage magnifies exposure: at 30:1 leverage (the EU ESMA retail cap), a £1,000 margin controls £30,000 notional. This amplifies both gains and losses proportionally.

Term Definition Practical Example PipSmallest standard price unit (0.0001 for most pairs)EUR/USD moves 1.1050 → 1.1060 = 10 pips Pipette1/10th of a pip (5th decimal place)Used in ECN pricing: 1.10503 LotStandard = 100k units; Mini = 10k; Micro = 1k1 mini lot EUR/USD: 1 pip = ~$1 SpreadAsk – Bid; broker's built-in costEUR/USD: 0.7 pip typical ECN spread LeverageBorrowed exposure ratio30:1 → £500 controls £15,000 MarginCollateral held by broker while trade is open3% margin on 30:1 leverage Margin callBroker demands more funds (equity near maintenance margin)Account at 50% margin level triggers warning Swap / RolloverDaily interest charge/credit for holding positions overnightLong AUD/JPY earns positive carry (when AUD rate > JPY)

The Three Foundational Strategies

1. Trend Following is the strategy with the longest documented institutional track record. The core logic is simple: buy when price is making higher highs and higher lows; sell when it is making lower lows and lower highs. The standard beginner implementation uses three moving averages — a 200-day MA for direction, a 50-day to confirm, and a 20-day for entry timing. You only take long trades when price is above the 200-day MA, and you enter on pullbacks to the 20-day. Trend following carries win rates often below 50%, but the winning trades are disproportionately large — it is an asymmetric strategy where you lose small and win big.

2. Range Trading operates in the opposite environment — when price is consolidating between defined support and resistance levels without forming a directional trend. You buy near support, sell near resistance, and use oscillators like RSI (below 30 for oversold, above 70 for overbought) and Stochastic to time entries. The critical discipline is knowing when to abandon the strategy: if a support or resistance level breaks on strong volume, the range trade is immediately invalidated and a stop-loss is essential.

3. Breakout Trading captures the momentum when price finally escapes a consolidation zone. You place a buy-stop order just above resistance, so the position is entered automatically only if and when the breakout occurs. The stop goes just below the breakout level; the target projects the same distance the price moved before the consolidation. Well-executed breakout trades often deliver 2:1 to 4:1 reward-to-risk ratios, which allows the strategy to be profitable with win rates as low as 35%.

Strategy Typical Win Rate Avg R:R Ratio Best Market Condition Key Indicator(s) Beginner Difficulty Trend Following 35–50% 3:1 – 5:1+ Strong directional trend MA 20/50/200, ADX ★★★☆☆ Medium Range Trading 55–65% 1.5:1 – 2:1 Low-volatility sideways market RSI, Stochastic, Bollinger Bands ★★☆☆☆ Easier Breakout 35–45% 2:1 – 4:1 Post-consolidation explosion Volume, ATR, S&R levels ★★★☆☆ Medium Carry Trade 60–70% 1:1 – 2:1 Low volatility, stable rates Interest rate differentials ★★★★☆ Harder News/Event 40–55% 2:1 – 3:1 High-impact data releases Economic calendar, volatility ★★★★★ Expert

Diagram: Moving Average Trend System — Entry Logic

200 MA 50 MA 20 MA ENTRY PRICE ABOVE ALL MAs = UPTREND CONFIRMED Buy pullbacks to 20 MA when 50 MA > 200 MA (golden cross)

Section 03 Stock Trading Explained — How Equity Markets Actually Work

When you buy a share of stock, you are purchasing a fractional ownership claim in a publicly listed company. That claim entitles you to dividends (if paid), voting rights on major company decisions, and a residual claim on assets if the company is ever wound up. Companies first issue shares to the public via an Initial Public Offering (IPO), raising capital directly from investors. From that point on, shares trade on the secondary market — the stock exchanges where retail traders actually operate — with the company receiving no further proceeds from those transactions.

Order Types: The Vocabulary of Execution

Understanding order types is not optional — it is the mechanical foundation of every trade you will ever place. Using the wrong order type at the wrong moment can cost you significantly, especially in less-liquid stocks.

Order Type Behaviour Price Control Best Used When MarketExecutes immediately at best available priceNone — you accept the marketHighly liquid stocks (AAPL, MSFT); speed is critical LimitExecutes only at your specified price or betterFull — you set the priceAll illiquid or volatile situations; default choice Stop (Market)Triggers a market order when stop price is touchedTrigger yes, fill noStop-loss exits on adverse moves Stop-LimitTriggers a limit order at the stop priceFull, but risk of no fill in fast marketWhen you must control exit price, accept gap risk Trailing StopStop level moves with price by % or fixed $Dynamic protectionLocking in profit during ongoing trends GTCStays open across sessions until filled or cancelledAs per the underlying orderSet-and-forget limit buys below market Fill-or-Kill (FOK)Must fill completely and immediately or cancelFullLarge institutional blocks

💡 Beginner Trap The single most common execution mistake beginners make is defaulting to market orders on low-volume stocks. A stock trading 50,000 shares a day with a bid-ask spread of $0.10 can easily slip $0.50 or more on a market order. Always use limit orders except on the most liquid large-caps — it costs you nothing extra and can save you real money.

Section 04 Stock Trading Strategy — From Value to Momentum

Stock trading strategy divides along two axes: the analytical framework (fundamental or technical) and the time horizon (long-term investing to intraday day trading). Most professional traders combine elements of both, using fundamentals to build a qualified watchlist and technicals to time entries and exits with precision.

Fundamental vs. Technical Analysis

Fundamental analysis evaluates a company's intrinsic value by examining its financial statements (income statement, balance sheet, cash flow statement), competitive position, management quality, industry dynamics, and macroeconomic environment. A fundamentals-driven investor asks: "Is this company worth more than the market currently values it?" Key metrics include Price-to-Earnings (P/E), Price-to-Book (P/B), Enterprise Value/EBITDA, free cash flow yield, and return on equity. This is the framework behind value investing (Graham, Buffett) and growth investing (Lynch, Fisher).

Technical analysis ignores a company's financials entirely and works only from price and volume data. Its foundational premise — that all known information is already reflected in the current price — means that analysing the price chart itself reveals the aggregate sentiment and positioning of every market participant. Technicals are the framework behind momentum trading, swing trading, and virtually all forms of day trading.

DimensionFundamental AnalysisTechnical Analysis Core question"What is this company worth?""Where is price going next?" Data usedEarnings, cash flow, balance sheet, macroPrice, volume, chart patterns, indicators Typical timeframeMonths to yearsMinutes to weeks Entry precisionLow (entering at "fair value range")High (specific trigger prices) Best practitionersBuffett, Graham, KlarmanEd Seykota, Stan Weinstein, IBD/CANSLIM Main weaknessStocks can remain cheap for yearsNo insight into *why* price is moving Combined useFundamentals filter the watchlist; technicals time the entry — the most common professional approach

The Four Major Trading Styles

Trading Style Comparison — Time Horizon vs. Screen Time Required

HOLDING PERIOD → Seconds Hours Days Weeks Months/Years SCREEN TIME → SCALPING Full day DAY TRADING 4–6 hrs/day SWING TRADING 1–2 hrs/day VALUE / POSITION <1 hr/week

Value investing holds positions for months to years, buying companies trading below their estimated intrinsic value. It requires patience above all else — a stock can remain undervalued far longer than most traders have tolerance for.

Momentum investing buys stocks showing strong recent relative performance (the 3-to-12-month price momentum effect is one of the most replicated findings in academic finance). The key insight is that earnings and price momentum tend to persist for longer than most people expect, due to the market's documented tendency to under-react to positive fundamental change.

Swing trading sits between day trading and position trading in both time horizon (days to weeks) and screen time requirement (typically 1–2 hours per day). It uses daily and 4-hour charts, and setups typically include breakouts from consolidation, pullbacks to rising moving averages, or reversals at key support/resistance. It is the style most accessible to traders who have day jobs.

Day trading requires all positions be opened and closed within the same session, eliminating overnight risk. The trade-off is intensity: profitable day trading demands hours of focused screen time, deep market knowledge, extremely tight risk management, and fast execution infrastructure. Historically the US FINRA Pattern Day Trader rule required a minimum $25,000 account for accounts making four or more day trades in five business days — but that rule was eliminated effective June 4, 2026 under FINRA Regulatory Notice 26-10.

Section 05 Stock Trading Bot — Automation, MT5 & Expert Advisors

A trading bot — or Expert Advisor (EA) in MetaTrader terminology — is software that monitors live market data and places, modifies, and closes orders automatically, without human intervention, according to pre-defined rules. The appeal is obvious: a bot never hesitates, never revenge-trades after a loss, never skips a valid signal because it fell asleep, and can monitor multiple instruments simultaneously across the clock. The reality is more nuanced: a bot is only as good as the underlying strategy, and a poorly designed or over-optimised EA will lose money just as systematically as it would have made it — only faster.

MT4 vs. MT5: Choosing Your Platform

Feature MetaTrader 4 (MT4) MetaTrader 5 (MT5) Winner Launch year20052010— Primary marketForex/CFDsMulti-asset (FX, stocks, futures, options)MT5 Timeframes921MT5 Built-in indicators3038MT5 Pending order types46MT5 Programming languageMQL4 (procedural)MQL5 (OOP, C++-like)MT5 Depth of MarketNoYesMT5 BacktestingSingle-threadedMulti-threaded, fasterMT5 EA library sizeVery large (legacy)Growing rapidlyMT4 Broker supportNear-universalMajority of major brokersMT4 Position modelHedging onlyHedging + NettingMT5

For pure forex automation on a well-established EA, MT4 remains the dominant choice purely because of ecosystem maturity. For new strategy development, multi-asset trading, or stock market automation, MT5 is the correct choice. The MQL5 Market — MetaQuotes' official store — has hundreds of paid and free EAs available, though due diligence on any commercial EA is essential; third-party live-tracked records on sites like MyFxBook or FXBlue are the only performance evidence worth trusting.

Diagram: Expert Advisor Execution Loop

MARKET DATA Tick / OHLCV Live feed STRATEGY LOGIC MA cross / breakout Signal generation RISK FILTER Position sizing Max drawdown check EXECUTION Market/limit order SL / TP placed Continuous loop — re-evaluates on every new tick

⚠ Bot Warning Do not purchase a commercial EA without a live third-party-verified track record of at least 12 months with real money, showing real-time statistics (not a backtest screenshot). Backtests are trivially curve-fitted to historical data. An EA that shows 500% backtested return at 98% win rate is not evidence of edge — it is evidence of over-optimisation. Forward test on demo for a minimum of three months before committing real capital.

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Section 06 Stock Trading Bull — Bull Markets, Bull Flags & Trend Riding

A bull market is defined as a rise of 20% or more in a major index from a prior bear-market trough. The current US bull market began on October 12, 2022, when the S&P 500 put in its cycle low, and has returned approximately 92% through end-2025 — putting it in solidly above-average territory but still below the historical bull-market average of 184% over 1,964 days. That historical context matters: assuming a bull market is "too old to continue" because it has lasted several years is a common and costly error.

Historical S&P 500 Bull Markets

Bull Market Period Duration (Days) S&P 500 Gain Notable Driver Jun 1949 – Aug 19562,607+267%Post-WWII economic expansion Oct 1957 – Dec 19611,527+86%Space race, manufacturing boom Jun 1962 – Feb 19661,340+80%Kennedy tax cuts, consumer growth Oct 1974 – Nov 19802,248+126%Post-oil shock recovery Aug 1982 – Aug 19871,839+229%Reaganomics, disinflation Dec 1987 – Mar 20004,494+582%Internet revolution, globalisation Oct 2002 – Oct 20071,826+101%Credit expansion, housing boom Mar 2009 – Feb 20203,999+401%QE, tech dominance, zero rates Mar 2020 – Jan 2022683+114%COVID stimulus, meme stocks Oct 2022 – present~1,330+~92%AI revolution, rate-cut cycle

The Bull Flag: The Momentum Trader's Core Pattern

Diagram: Bull Flag Pattern Anatomy

FLAGPOLE (strong volume) FLAG (declining volume) BREAKOUT Entry: buy-stop above flag TARGET (=pole height) STOP (below flag low) VOLUME: HIGH on pole → LOW during flag → HIGH on breakout = confirmation

The entry is a buy-stop order placed just above the flag's upper trendline — this means you only enter if the breakout actually occurs, avoiding the costly mistake of anticipating a move that never materialises. The stop-loss sits just below the consolidation low; any retracement deeper than roughly 50% of the flagpole invalidates the pattern. The initial target is calculated by measuring the flagpole height and projecting it upward from the breakout point, typically giving reward-to-risk ratios of 3:1 or better.

Section 07 Stock Trading Business — Prop Firms, Capital & Structure

Once a trader has a documented edge, the question becomes capital. A retail account of £5,000 trading at 1% risk per trade generates modest absolute returns even when the strategy is excellent. There are two mainstream paths to scaling: building a personal account through compounding over time, or accessing proprietary trading firm (prop firm) capital via an evaluation process.

Leading Prop Firms Compared (2026)

Firm Max Account Size Profit Split Drawdown Limit Evaluation Type Assets Traded FTMO Up to $400k Up to 90% 5% daily / 10% overall 2-step challenge Forex, indices, commodities, stocks Topstep $150k (Live Funded) 90% (flat) Per account tier 1-step Combine CME Futures FundedNext $300k Up to 95% 5% daily / 10% overall 1 or 2-step Forex, indices, crypto The5ers $4 million (scaling) 100% (milestone plan) 4% daily / 6-8% overall Milestone-based Forex, indices, metals MyFundedFX $200k Up to 85% 5% daily / 12% overall 2-step Forex, metals, indices

Topstep 2025 Cohort — Trader Progression Funnel (Published Data)

ALL APPLICANTS — 100% Start Trading Combine PASS COMBINE — 16.8% Met profit target, respected drawdown limits FUNDED LEVEL — 8.7% of total 51.8% of combine passers advance PAYOUT — 2.9% of total 33.3% of funded traders ever paid out LIVE FUNDED 0.71%

The 0.71% live-funded rate is not an argument against prop firms — it is an argument for having a fully documented, consistently profitable strategy before paying a challenge fee. Prop firms are not a shortcut to trading capital; they are a capital-access mechanism for traders who have already demonstrated edge.

— Topstep 2025 Cohort Data

Section 08 Stock Trading Element — Building a Complete Trading Plan

A trading plan is not an optional extra for disciplined traders — it is the only thing separating you from gambling. Without a written, pre-defined plan covering every element below, you will make decisions in real time under the emotional pressure of live P&L, and the research on decision-making under financial stress is unanimous: those decisions will be worse than your cool-headed pre-market judgements.

# Element What to Define Example Rule 1 Market Selection Which instruments, which timeframes, which sessions "Trade EUR/USD and GBP/USD on the 4H chart, London/NY overlap only" 2 Entry Rules Specific, objective, testable trigger conditions "Buy on close above 20-day high with volume ≥ 1.5× the 20-day average" 3 Stop-Loss Rule Maximum loss per trade, in dollars AND pips/points "Initial stop 2× ATR(14) below entry; never moved against position" 4 Profit Target / Exit When to take profit; trailing stop rules "Trail stop to breakeven at 1R; trail to 50% of gains at 2R" 5 Position Sizing Risk per trade as % of equity "Risk 1% of account equity; position size = (Equity × 1%) ÷ Stop distance" 6 Portfolio Heat Maximum total open risk across all positions "No more than 4% total account at risk; max 4 concurrent positions" 7 Daily/Weekly Loss Limit Point at which you stop trading and review "If down 3% on any day, stop trading; review journal before next session" 8 Psychology Rules Pre-trade checklist; post-loss protocols "Complete 5-point pre-trade checklist; mandatory 10-min break after 2 consecutive losses" 9 Review Cadence How often you analyse performance data "Journal every trade; weekly R-multiple review; monthly expectancy audit"

Position Sizing: The Maths That Determines Your Survival

The formula is simple but its implications are profound. With a £50,000 account, a 1% risk rule, and a stop-loss 50 pips from entry on a standard EUR/USD lot (pip value ≈ £8.50 at GBP/USD 1.18):

Risk per trade = £50,000 × 1% = £500 Stop in GBP value = 50 pips × £8.50/pip = £425 per standard lot Position size = £500 ÷ £425 = 1.18 standard lots (Rounded to 1.2 standard lots for practical execution)

The most dangerous words a new trader says are "I'll just use a round number of lots." That approach decouples position size from actual risk, which means your account exposure varies wildly across trades depending on where your stops happen to be placed. Systematic position sizing is what prevents a string of losses from wiping out months of gains.

Trading Psychology: Why Smart People Make Expensive Mistakes

Daniel Kahneman and Amos Tversky's prospect theory demonstrated that losses are felt approximately 2.25 times as powerfully as equivalent gains (their 1992 study in the Journal of Risk and Uncertainty). This asymmetry drives two of the most destructive behavioural patterns in trading: cutting winners early (to lock in the certainty of a gain) and holding losers too long (to avoid realising the pain of a loss). A well-designed trading plan — with pre-defined exits for both profit and loss — is the mechanism that takes those decisions out of your hands in the heat of the moment.

Section 09 Stock Exchange Trading — How the World's Exchanges Work

A stock exchange is the infrastructure that connects buyers and sellers of securities, providing transparent price discovery, liquidity, and regulatory oversight. There are two foundational market structure models that every trader should understand, because the type of exchange affects how your orders are filled.

The auction/specialist model (exemplified by the NYSE) uses Designated Market Makers (DMMs) who are assigned to specific securities and hold obligations to maintain fair and orderly markets — particularly important at the open and close when a centralised auction determines opening and closing prices. The electronic dealer model (exemplified by Nasdaq, founded February 8, 1971 as the world's first fully electronic stock market) has multiple competing market makers electronically posting competing two-sided quotes; the best bid and offer win. Most major exchanges globally now run hybrid models with electronic matching as the core and specialist/DMM functions overlaid for liquidity provision.

Exchange Country Est. Market Cap Listed Companies Trading Hours (Local) NYSEUSA~$30.9T~2,00009:30–16:00 ET NasdaqUSA~$32T4,07509:30–16:00 ET Shanghai SEChina~$7T2,200+09:30–15:00 CST EuronextEurope~$7T1,900+09:00–17:30 CET Japan Exchange GroupJapan~$6T3,800+09:00–15:30 JST LSE (London)UK~$5.9T1,900+08:00–16:30 GMT BSE/NSE (India)India~$5T combined5,000+ (BSE)09:15–15:30 IST Shenzhen SEChina~$4.5T2,800+09:30–15:00 CST TSX (Toronto)Canada~$3.55T3,000+09:30–16:00 ET Deutsche BörseGermany~$2T (Xetra)700+09:00–17:30 CET

Global Equity Market Cap Distribution — Top Exchanges 2025

$10T $20T $30T Nasdaq $32T NYSE $30.9T Shanghai $7T Euronext $7T JPX $6T LSE $5.9T BSE/NSE $5T Shenzhen $4.5T TSX $3.55T

ECNs: The Infrastructure Behind Modern Execution

An Electronic Communications Network (ECN) is a computer system that matches buy and sell orders directly, at specified prices, without requiring a traditional market maker or specialist intermediary. The SEC defines them under Rule 600(b)(23) of Regulation NMS as electronic systems that "automatically match buy and sell orders at specified prices." ECN subscribers post limit orders; the system matches them when prices cross. Because retail investors cannot subscribe to ECNs directly, they access this liquidity only through their broker-dealer intermediaries — meaning the quality of your broker's routing decisions directly affects the prices you receive on execution.

📋 Key Regulatory Update: PDT Rule Abolished (June 2026) Effective June 4, 2026, FINRA eliminated the Pattern Day Trader rule under Regulatory Notice 26-10 (SEC Release No. 34-105226, approved April 14, 2026). The historical $25,000 minimum equity requirement and the "4 day trades in 5 business days" threshold no longer apply. New intraday margin standards replace the old framework. US-based day traders should confirm the revised rules with their specific broker before changing their trading approach.

Section 10 Your 4-Stage Roadmap: From Demo Account to Trading Business

There is no universally correct sequence for every trader, but there is a logic to the progression that reduces the probability of blowing an account during the learning curve. The roadmap below compresses the hard-won wisdom of many experienced traders into a staged framework.

01

Education & Paper Trading (Months 1–3)

Open a demo account on MT5 or a paper-trading platform (Interactive Brokers, TradingView, Webull). Learn order types, chart reading, and platform mechanics before placing real capital. Study one book each on trading psychology (Mark Douglas — Trading in the Zone), position sizing (Van Tharp — Trade Your Way to Financial Freedom), and trend following (Curtis Faith — Way of the Turtle). Benchmark to advance: 50 paper trades logged with written reasoning and consistent plan adherence above 90%.

02

Single Strategy, Small Live Capital (Months 3–6)

Choose ONE strategy on ONE instrument class. The highest-expected-value beginner approach is a moving-average trend system or bull-flag breakout on liquid large-caps or EUR/USD. Risk 0.5% per trade — half the normal 1% — during this phase, because you are still learning the emotional reality of live P&L. Capital: whatever you can lose without affecting your life. Benchmark to advance: 50 live trades with a positive average R-multiple and plan adherence above 90%.

03

Scaling & Tooling (Months 6–12)

Increase risk per trade to 1%. Consider automation only if your manual strategy has a documented edge of at least 50 trades — code it as an MT5 Expert Advisor or Python bot and forward-test on demo for a minimum of three months before risking real capital. Consider applying to a prop firm only after three consecutive profitable months. See the stock trend following system at Elite MetaTrader for systematic tools. Benchmark to advance: account up 15%+ with maximum drawdown under 10%.

04

Diversification & Business Structure (Year 2+)

Add a second uncorrelated strategy (e.g., a mean-reversion complement to your trend system). Formalise your trading business structure with appropriate tax and accounting advice — in the UK this means understanding HMRC's treatment of trading income vs. investment income and potentially registering as a sole trader or limited company. Track expectancy and adjust position sizing using volatility-adjusted methods (ATR-based) rather than fixed pips or points. Milestone: your trading income represents a material, consistent supplement to or replacement of salaried income.

Ready to Follow the Trend Systematically?

A rules-based stock trend following system removes emotion, enforces position sizing, and keeps you on the right side of the dominant market move. Explore professionally built MT5 tools designed for exactly this purpose.

→ Visit the Stock Trend Following System

Risk Disclaimer: Trading foreign exchange, stocks, indices, commodities, and derivatives carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade, you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment. Do not invest money that you cannot afford to lose. This article is for educational and informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Statistics sourced from Bank for International Settlements (BIS Triennial Survey 2025), World Federation of Exchanges (WFE 2025), Topstep published 2025 cohort data, and public company disclosures. Always verify regulatory requirements in your jurisdiction.

Elite MetaTrader · Finance Education · June 2026

Forex & Stock Trading in 2026

From reading your first currency pair to building a systematic trading business — everything the markets want you to figure out the hard way, laid out clearly.

Forex Strategy · Stock Markets · Trading Bots · Bull Markets · Exchange Structure · Risk Management

$9.6T Daily FX Turnover (BIS 2025) $151T Global Equity Market Cap (WFE 2025) 92% S&P 500 gain this bull cycle (Oct 2022–) 74–89% Retail CFD accounts that lose money (ESMA)

⚠ Risk Disclosure

Between 74% and 89% of retail CFD accounts lose money according to ESMA data. Even among pre-screened prop-firm traders, Topstep's published 2025 cohort shows only 0.71% of participants reaching the live-funded stage. Trading is a legitimate profession — but it is not a shortcut to wealth. Read this guide in full before putting capital at risk.

Table of Contents

What Is Forex Trading? Markets, Structure & Scale

Forex Trading Strategy for Beginners

Stock Trading Explained — How Equity Markets Work

Stock Trading Strategy — From Value to Momentum

Stock Trading Bot — Automation, MT5 & Expert Advisors

Stock Trading Bull — Bull Markets, Bull Flags & Trend Riding

Stock Trading Business — Prop Firms, Capital & Structure

Stock Trading Element — Building a Complete Trading Plan

Stock Exchange Trading — How the World's Exchanges Work

Your 4-Stage Roadmap: Demo Account to Trading Business

There are two ways to learn the markets. The first is to deposit money, trade on instinct, and let the market teach you — expensively, sometimes catastrophically. The second is to understand the structure, mechanics, and tested frameworks before you risk a penny. This guide is the second way. It covers everything from what a pip is to how a prop firm's evaluation works, backed by real data, working diagrams, and the honest statistics that too many trading courses quietly omit.

What Is Forex Trading? Markets, Structure & Scale

The foreign exchange market — forex, or FX — is the mechanism by which one currency is converted into another. It operates as a decentralised, over-the-counter (OTC) global network running 24 hours a day, five days a week, with no single central exchange. In April 2025 the Bank for International Settlements (BIS) Triennial Survey recorded daily turnover of approximately $9.6 trillion — a 28% jump from $7.5 trillion in 2022. For context: the entire US GDP in 2024 was roughly $28 trillion, meaning the forex market turns over a third of that every single day.

Volumes are dominated by the US dollar, which appears on one side of 89.2% of all transactions. EUR/USD remains the single most-traded pair, followed by USD/JPY. A critical point for beginners: retail speculative traders represent a tiny fraction of total FX volume — the $9.6 trillion is overwhelmingly interbank flow, institutional asset managers, and corporate hedgers. You are not trading against other beginners; you are trading in a market shaped by some of the most sophisticated participants on earth. That is why systematic, rules-based approaches consistently outperform discretionary guesswork at the retail level.

Chart: FX Market Participant Volume Breakdown (BIS 2025)

100% 75% 50% 25% 38% Dealer Banks 55% Institutional 6% Corporate ~1% Retail Spec. Approximate share of $9.6T daily turnover

Forex Trading Strategy for Beginners

The Core Vocabulary: Pips, Lots, Spread & Leverage

Before any strategy can be applied, four mechanical concepts must be second nature. A pip is the minimum standard price increment — the fourth decimal place on most pairs (EUR/USD 1.1000 to 1.1001 = 1 pip). For yen pairs it is the second decimal (USD/JPY 150.00 to 150.01 = 1 pip). A lot defines position size: 1 standard lot = 100,000 currency units; on a standard EUR/USD lot, one pip move equals approximately $10. Spread is the broker's built-in cost — the gap between buy price (ask) and sell price (bid); EUR/USD typically trades under 1 pip on ECN-style accounts, while exotic pairs like USD/TRY can carry spreads above 800 pips. Leverage magnifies exposure: at 30:1 leverage (the EU ESMA retail cap for major forex pairs), a £1,000 margin controls £30,000 notional, amplifying both gains and losses proportionally.

Term Definition Practical Example PipSmallest standard price unit (0.0001 for most pairs)EUR/USD 1.1050 to 1.1060 = 10 pips LotStandard = 100k units; Mini = 10k; Micro = 1k1 mini lot EUR/USD: 1 pip ≈ $1 SpreadAsk minus Bid; the broker's built-in costEUR/USD: 0.7 pip typical ECN spread LeverageBorrowed exposure ratio30:1 means £500 controls £15,000 MarginCollateral held by broker while trade is open3.3% margin at 30:1 leverage Margin CallBroker demands more funds when equity nears margin levelAccount equity hits 50% of used margin Swap/RolloverDaily interest charge or credit for holding positions overnightLong AUD/JPY may earn positive carry

The Three Foundational Strategies

1. Trend Following is the strategy with the longest documented institutional track record. The logic is simple: buy when price is making higher highs and higher lows; sell when it makes lower lows and lower highs. The standard beginner implementation uses three moving averages — a 200-day MA for direction, a 50-day to confirm, and a 20-day for entry timing. You only take long trades when price is above the 200-day MA, entering on pullbacks to the 20-day. Win rates are often below 50%, but the winning trades are disproportionately large — you lose small, win big, and the maths works out over a large sample.

2. Range Trading operates when price is bouncing between defined support and resistance levels without trending. You buy near support, sell near resistance, and use oscillators like RSI and Stochastic to confirm reversal zones. The critical discipline is recognising when to abandon the strategy: if a support level breaks on strong volume, the range trade is immediately invalidated and your stop-loss is not optional.

3. Breakout Trading captures momentum when price escapes a consolidation zone. A buy-stop order is placed just above resistance so you only enter if the breakout actually occurs. The stop sits just below the breakout level; the target projects the same distance price moved before consolidating. Breakout trades often deliver 2:1 to 4:1 reward-to-risk, allowing profitability even with win rates as low as 35%.

Strategy Win Rate Avg R:R Best Condition Difficulty Trend Following35–50%3:1 – 5:1+Strong directional trend★★★☆☆ Medium Range Trading55–65%1.5:1 – 2:1Sideways, low-volatility★★☆☆☆ Easier Breakout35–45%2:1 – 4:1Post-consolidation expansion★★★☆☆ Medium Carry Trade60–70%1:1 – 2:1Low volatility, stable rates★★★★☆ Harder News / Event40–55%2:1 – 3:1High-impact data releases★★★★★ Expert

Diagram: Moving Average Trend System — Entry Logic

200 MA 50 MA 20 MA ENTRY Price above all 3 MAs = uptrend confirmed. Buy pullbacks to the 20 MA.

Stock Trading Explained — How Equity Markets Work

When you buy a share of stock, you are acquiring a fractional ownership claim in a publicly listed company, entitling you to dividends, voting rights, and a residual claim on assets in liquidation. Companies first issue shares via an Initial Public Offering (IPO), raising capital directly. After that, shares trade on the secondary market — the stock exchanges where retail traders operate — with the company receiving no further proceeds from those transactions.

Understanding the participants you trade alongside is essential context. Institutional investors (mutual funds, pension funds, sovereign wealth funds) dominate volume. Hedge funds pursue active strategies with leverage. Market makers and Designated Market Makers (DMMs) continuously quote two-sided prices to provide liquidity. High-frequency traders capture tiny edges millions of times per day. None of these participants are on your side — they are professionals competing for the same price moves you are. That is precisely why disciplined, systematic retail traders — those with a written edge and strict risk management — consistently outperform those relying on instinct.

Order Type Behaviour Best Used When MarketExecutes immediately at best available priceHighly liquid large-caps; speed matters most LimitExecutes only at your specified price or betterDefault for all illiquid or volatile situations Stop (Market)Becomes a market order when stop price is hitStop-loss exits on adverse moves Stop-LimitBecomes a limit order at the stop trigger priceWhen you must control exit price; accept gap risk Trailing StopStop level moves with price by % or fixed amountLocking in profit during ongoing trends GTCStays open across sessions until filled or cancelledSet-and-forget limit buy orders below market

💡 Beginner Trap

The single most common execution mistake is defaulting to market orders on low-volume stocks. A stock trading 50,000 shares a day with a $0.10 spread can slip $0.30–$0.50 or more on a market order. Always default to limit orders unless you are trading the most liquid large-cap names.

Section 04 Stock Trading Strategy — From Value to Momentum

Stock trading strategy divides along two axes: the analytical framework (fundamental or technical) and the time horizon (long-term investing to intraday day trading). Most professional traders combine both — using fundamentals to build a qualified watchlist and technicals to time entries and exits with precision.

Dimension Fundamental Analysis Technical Analysis Core question“What is this company worth?”“Where is price going next?” Data usedEarnings, cash flow, balance sheet, macroPrice, volume, chart patterns, indicators Typical timeframeMonths to yearsMinutes to weeks Entry precisionLow — entering at “fair value range”High — specific trigger prices Main weaknessA stock can remain cheap for yearsNo insight into why price is moving Combined useFundamentals filter the watchlist; technicals time the entry — the standard professional approach

Value investing holds positions for months to years, buying companies trading below intrinsic value. Momentum investing buys stocks with strong recent relative performance — the 3-to-12-month momentum effect is one of the most replicated findings in academic finance. Swing trading holds for days to weeks using daily charts, requiring only 1–2 hours of screen time per day — the style most accessible to those with day jobs. Day trading requires all positions opened and closed within the same session. Notably, the US FINRA Pattern Day Trader rule — historically requiring a $25,000 minimum account — was eliminated effective June 4, 2026 under FINRA Regulatory Notice 26-10.

Section 05 Stock Trading Bot — Automation, MT5 & Expert Advisors

A trading bot — called an Expert Advisor (EA) in MetaTrader — monitors live market data and places, modifies, and closes orders automatically according to pre-defined rules. The appeal is obvious: a bot never hesitates, never revenge-trades after a loss, and never misses a signal because it fell asleep. The reality is more nuanced: a bot is only as good as the underlying strategy, and a poorly designed EA will lose money just as systematically as it would have made it — only faster.

Feature MetaTrader 4 MetaTrader 5 Winner Primary marketForex / CFDsMulti-asset (FX, stocks, futures)MT5 Timeframes921MT5 Built-in indicators3038MT5 BacktestingSingle-threadedMulti-threaded, much fasterMT5 Depth of MarketNoYesMT5 EA Library sizeVery large (legacy)Growing via MQL5 MarketMT4 (currently) Position modelHedging onlyHedging + NettingMT5

⚠ Bot Warning

Do not purchase a commercial EA without a live third-party-verified track record of at least 12 months with real money on MyFxBook or FXBlue. Backtests are trivially curve-fitted to historical data. An EA showing 500% backtested return at 98% win rate is not evidence of edge — it is evidence of over-optimisation. Forward-test on demo for a minimum of three months before committing real capital.

Automate Your Edge with a Proven MT5 System

If you want a systematic, rule-based approach to trend following in stocks without coding from scratch, explore the professionally developed tools at Elite MetaTrader.

→ Explore the Stock Trend Following System

Section 06 Stock Trading Bull — Bull Markets, Bull Flags & Trend Riding

A bull market is defined as a rise of 20% or more from a prior bear-market low. The current US bull market began on October 12, 2022 and has returned approximately 92% through end-2025 — above average in magnitude but still below the historical mean of 184% over 1,964 days. Assuming a bull market is too old to continue simply because it has already run for several years is a common and costly mistake.

Bull Market Period Duration (Days) S&P 500 Gain Key Driver Jun 1949 – Aug 19562,607+267%Post-WWII expansion Aug 1982 – Aug 19871,839+229%Reaganomics, disinflation Dec 1987 – Mar 20004,494+582%Internet revolution, globalisation Mar 2009 – Feb 20203,999+401%QE, tech dominance, zero rates Mar 2020 – Jan 2022683+114%COVID stimulus, meme stocks Oct 2022 – present1,330+~92%AI revolution, rate-cut cycle

The Bull Flag: The Momentum Trader's Core Pattern

Within a bull market, the most reliable continuation pattern for individual stocks is the bull flag. It forms when a stock makes a sharp, near-vertical advance (the flagpole) on heavy volume, then consolidates in a tight, slightly downward-sloping channel (the flag) on declining volume, before breaking upward again. Entry is a buy-stop just above the flag's upper trendline. Stop-loss sits just below the consolidation low. Target is measured by projecting the flagpole height upward from the breakout, typically producing reward-to-risk ratios of 3:1 or better.

Diagram: Bull Flag Pattern Anatomy

FLAGPOLE (heavy volume) FLAG (declining volume) BREAKOUT ENTRY Buy-stop above flag high TARGET (= pole height) STOP (below flag low) VOLUME: High on pole → Low during flag → High on breakout = confirmed signal

Section 07 Stock Trading Business — Prop Firms, Capital & Structure

Once a trader has a documented edge, the question becomes capital. A retail account of £5,000 trading at 1% risk per trade generates modest absolute returns even with an excellent strategy. Two mainstream paths exist: building a personal account through compounding, or accessing proprietary trading firm (prop firm) capital via an evaluation process.

Firm Max Account Profit Split Max Drawdown Assets FTMO$400kUp to 90%5% daily / 10% overallForex, indices, stocks Topstep$150k90% flatPer tierCME Futures FundedNext$300kUp to 95%5% daily / 10% overallForex, indices, crypto The5ers$4 million100% milestones4% daily / 6–8% overallForex, indices, metals MyFundedFX$200kUp to 85%5% daily / 12% overallForex, metals, indices

Topstep 2025 Cohort — Trader Progression Funnel (Published Data)

ALL APPLICANTS — 100% Start Trading Combine PASS COMBINE — 16.8% Profit target met, drawdown respected FUNDED LEVEL — 8.7% of total 51.8% of passers advance PAYOUT — 2.9% of total 33.3% of funded traders ever paid out LIVE FUNDED — 0.71%

The 0.71% live-funded rate is not an argument against prop firms — it is an argument for having a fully documented, consistently profitable strategy before paying a challenge fee. Prop firms are a capital-access mechanism for traders who have already demonstrated edge.

Based on Topstep 2025 published cohort data

Stock Trading Element — Building a Complete Trading Plan

A trading plan is not optional — it is the only thing separating systematic trading from gambling. Without a written, pre-defined plan, you will make decisions in real time under the emotional pressure of live P&L, and those decisions will consistently be worse than your cool-headed pre-market judgements.

# Element Example Rule 1Market Selection“Trade EUR/USD on 4H chart, London/NY overlap only” 2Entry Rules“Buy on close above 20-day high with volume ≥1.5× average” 3Stop-Loss Rule“Initial stop 2× ATR(14) below entry; never moved against position” 4Profit Target“Trail stop to breakeven at 1R; trail to 50% of gains at 2R” 5Position Sizing“Risk 1% of equity; size = (Equity × 1%) ÷ stop distance” 6Portfolio Heat“Max 4% total account at risk; max 4 concurrent positions” 7Daily Loss Limit“If down 3% in a day, stop trading and review journal” 8Psychology Rules“5-point pre-trade checklist; 10-min break after 2 consecutive losses” 9Review Cadence“Journal every trade; weekly R-multiple review; monthly expectancy audit”

The position sizing formula is simple but its implications are profound. With a £50,000 account, 1% risk, and a stop 50 pips from entry on EUR/USD (pip value ≈ £8.50):

Risk per trade = £50,000 × 1% = £500 Stop value = 50 pips × £8.50/pip = £425 per standard lot Position size = £500 ÷ £425 = 1.18 standard lots

Kahneman and Tversky's prospect theory demonstrated that losses are felt approximately 2.25 times as intensely as equivalent gains — which is why traders systematically cut winners early and hold losers too long. A written plan with pre-defined exits takes those decisions out of your hands precisely when your judgement is least reliable.

Section 09 Stock Exchange Trading — How the World's Exchanges Work

A stock exchange connects buyers and sellers with transparent price discovery, continuous liquidity, and regulatory oversight. Two foundational models matter for traders: the auction/specialist model (exemplified by the NYSE) uses Designated Market Makers assigned to each security with obligations to maintain fair and orderly markets; the electronic dealer model (exemplified by Nasdaq, founded February 8, 1971 as the world's first fully electronic stock market) features multiple competing market makers posting electronic two-sided quotes. Most exchanges today run hybrid models.

Exchange Country Market Cap Listed Cos Hours (Local) NYSEUSA~$30.9T~2,00009:30–16:00 ET NasdaqUSA~$32T4,07509:30–16:00 ET Shanghai SEChina~$7T2,200+09:30–15:00 CST EuronextEurope~$7T1,900+09:00–17:30 CET LSE (London)UK~$5.9T1,900+08:00–16:30 GMT Japan ExchangeJapan~$6T3,800+09:00–15:30 JST BSE / NSE (India)India~$5T5,000+ (BSE)09:15–15:30 IST Deutsche BörseGermany~$2T700+09:00–17:30 CET

📋 Regulatory Update: PDT Rule Abolished — June 2026

Effective June 4, 2026, FINRA eliminated the Pattern Day Trader rule under Regulatory Notice 26-10 (SEC Release No. 34-105226, approved April 14, 2026). The historical $25,000 minimum equity requirement and the “4 day trades in 5 business days” threshold no longer apply in the US. New intraday margin standards replace the old framework. Confirm the revised rules with your specific broker before adjusting your trading approach.

Your 4-Stage Roadmap: Demo Account to Trading Business

There is no single correct sequence for every trader, but the progression below compresses hard-won wisdom into a staged framework that materially reduces the probability of blowing an account during the learning curve.

Stage 01 Education & Paper Trading — Months 1–3

Open a demo account on MT5 or a paper-trading platform. Learn order types, chart reading, and platform mechanics before risking real capital. Study at minimum one book on trading psychology (Mark Douglas — Trading in the Zone) and one on position sizing (Van Tharp — Trade Your Way to Financial Freedom). Benchmark to advance: 50 paper trades logged with written reasoning and plan adherence above 90%.

Stage 02 Single Strategy, Small Live Capital — Months 3–6

Choose ONE strategy on ONE instrument class. The highest-expected-value beginner combination is a moving-average trend system or bull-flag breakout on liquid large-caps or EUR/USD. Risk 0.5% per trade — half the standard 1% — because you are learning the emotional reality of live P&L. Benchmark to advance: 50 live trades with a positive average R-multiple and plan adherence above 90%.

Stage 03 Scaling & Tooling — Months 6–12

Increase risk per trade to 1%. Consider automation only after your manual strategy has a documented edge across at least 50 trades — code it as an MT5 Expert Advisor and forward-test on demo for three months before risking real capital. Consider a prop firm application only after three consecutive profitable months. Explore the stock trend following system at Elite MetaTrader for systematic tools built for exactly this stage. Benchmark to advance: account up 15%+ with max drawdown under 10%.

Stage 04 Diversification & Business Structure — Year 2+

Add a second uncorrelated strategy — for example, a mean-reversion complement to your trend system. Formalise your trading business structure with professional accounting and tax advice (in the UK, understand HMRC's treatment of trading income vs. investment income). Track expectancy and adjust position sizing using volatility-adjusted methods (ATR-based) rather than fixed pips. Milestone: your trading income represents a consistent, material supplement to or replacement of salaried income.

Ready to Follow the Trend Systematically?

A rules-based stock trend following system removes emotion, enforces position sizing, and keeps you aligned with the dominant market move. Explore professionally built MT5 tools designed for exactly this purpose.

→ Visit the Stock Trend Following System

Risk Disclaimer: Trading foreign exchange, stocks, indices, commodities, and derivatives carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. This article is for educational and informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Statistics sourced from BIS Triennial Survey 2025, World Federation of Exchanges 2025, Topstep published 2025 cohort data, and public disclosures. Always verify regulatory requirements in your jurisdiction before trading.