📚 Trading Basics

Trading is the process of buying and selling stocks to profit from price movement.

A stock represents ownership of the company. When you buy a stock you are buying a piece of the company's business.

If a company grows → stock price goes up
If a company struggles → stock price goes down

As traders, we don’t need to hold long-term — we focus on the movement of price.

Every price move comes from buyers and sellers interacting:
Buyers push price higher
Sellers push price lower

As a trader, your job is to understand:
when buyers are becoming aggressive
when sellers are taking control

Trading is not guessing — it’s reading behavior.

How Money is Made in Trading

You make money when you sell a stock at a higher price than you bought it.

Example:
Buy at $10
Sell at $11
Profit = $1 per share

If you had 100 shares → you made $100

⚠️ Important: Losses Are Part of Trading

Not every trade will win. Losses are NORMAL.

Example:
Buy at $10
Sell at $9
Loss = $1 per share

👉 The goal is to keep losses small, let winners ride, and stay consistent over time!

There are two main ways people approach the market.

Investing

Long-term (years)
Focus on company growth and fundamentals
Less focus on timing

Trading

Short-term (minutes to weeks)
Focus on price movement and timing
Requires more active decision-making

Types of Trading

Within trading, there are two main styles.

Day Trading

Trades are opened and closed within the same day
No overnight holding
Faster pace

Swing Trading

Trades are held for several days to weeks
Slower pace

What This Means:

• Day trading requires speed and quick decisions
• Swing trading requires patience and structure

Both are valid, but they require different approaches.

Stocks are bought and sold on exchanges.

An exchange is where buyers and sellers meet to trade shares.

Think of an exchange like a giant marketplace. Buyers and sellers don't go there themselves, their brokers do. Your broker is your messenger to the marketplace.

When you place a trade:

• You send an order through your broker
• Your broker routes the order to an exchange
• A buyer and seller match
• The trade is executed

Main U.S. Exchanges

NYSE (New York Stock Exchange)

Known for larger, more established companies
Generally more stable price movement

NASDAQ

More technology-focused
Includes both large cap and smaller growth companies

NYSE American (AMEX)

Previously called AMEX
More small cap and lower-priced stocks
Typically more volatile

OTC (Over-The-Counter Stocks)

Some stocks do not trade on major exchanges, such as OTC stocks.

They trade through dealers instead of a centralized exchange.

OTC stocks typically have:
Lower volume
Less regulation
Less transparency
Less consistent price movement

👉 Because of this, we do not focus on OTC stocks

ETFs (Exchange-Traded Funds)

An ETF is a basket of stocks that trades like a single stock.
Instead of buying many individual companies, you can buy one ETF that holds them all.
Examples:

• SPY → tracks the S&P 500 (the 500 largest US companies)
• QQQ → tracks the NASDAQ 100 (mostly tech)
• IWM → tracks the Russell 2000 (small caps)

ETFs trade on the same exchanges as stocks, during the same hours, with the same order types.
👉 SPY is the one to watch closely. We'll cover why in Lesson 7.

🕌 Halal note: Most major ETFs contain non-halal companies, so we don't buy them. Halal ETFs do exist if you want to invest, but we focus on individual halal stocks here.
We still watch SPY because it tells us the direction of the overall market, not because we trade it.

Before placing trades, you need to understand when the market is active, because behavior changes depending on the time of day.

Premarket (4:00 AM – 9:30 AM ET)

Used for early news, earnings reactions, and stocks starting to gain attention.

It typically has:

• Lower volume
• More volatile
• Less predictable movement

Limitations:

• Limit orders only
• No market orders
• Stop losses do not work reliably

Regular Market (9:30 AM – 4:00 PM ET)

This is when most trading happens.

Highest volume
More consistent price movement
More reliable setups

Conditions:

All order types available
Better execution

🌙 After Hours (4:00 PM – 8:00 PM ET)

Often driven by earnings releases and news.

Lower liquidity
Less reliable movement
Wider spreads

Limitations:

Limit orders only
Execution can be less predictable

👉 Not all brokers support full premarket and after-hours trading

As you might have noticed, not all stocks move the same way.

Some move slowly and steadily.
Others move fast and aggressively.

Two of the main reasons for this are:
Market cap (company size)
Float (shares available to trade)

📊 Market Cap (Company Size)

Market cap is the total value of a company.

It is calculated as:
Stock price × total number of shares

• Large Cap (Over $10 Billion)
• Large, well-established companies
• Move slower and more steadily
• Harder for price to move quickly

• Mid Cap ($2B – $10B)
• Moderate size
• Balanced movement

• Small Cap (Under $2 Billion)
• Smaller companies
• Move faster
• More volatile

Most short-term trading opportunities come from small caps

📉 Float (Shares Available to Trade)

Float is the number of shares that are available for the public to buy and sell.

👉 This is one of the biggest factors in how fast a stock can move

• Low Float (Under ~20 million shares)

Fewer shares available
Price moves easily
More volatile

• Medium Float (20M – 100M shares)

More shares available
More controlled movement

• High Float (100M+ shares)

Many shares available
Harder to move price
More stable

A Note on Penny Stocks

Penny stocks are small caps priced under $5. True pennies (under $1) carry the highest risk:

• More dilution
• More likely to reverse split
• Less reliable price movement

👉 We do not trade anything under $2 for this reason.

How Market Cap & Float Work Together

These two factors work together to determine how a stock behaves.

Small cap + low float → fast, aggressive movement
Large cap + high float → slower, more stable movement

This is why some stocks can move 20–50% in a day, while others barely move at all. But for any stock to move there needs to be volume.

Before taking a trade, you need to understand how to evaluate a stock.

There are two main ways to do this:
Fundamental analysis
Technical analysis

Fundamental Analysis

Fundamental analysis looks at the company behind the stock.

For large caps, this often focuses on:

• earnings (that's why earnings season affects the market so much)
• growth
• long-term performance

For small caps, the focus is different.

Small cap companies are often:

• less established
• more dependent on raising money
• more likely to have risks that affect price

When trading small caps, you are not trying to decide if the company is “good.”

You are trying to understand what could cause the price to drop or fail.

Dilution

The company adds more shares
More shares = more supply → price pressure

Offerings

The company sells shares to raise money
Often causes:
sudden drops
increased selling pressure

Reverse Splits

Shares are reduced to increase the price
Example:
10 shares → 1 share

This does not create real value and is often a warning sign

Warrants

Extra shares that can be exercised later
Can create:
resistance
future selling pressure

Fundamental analysis helps you understand risk, but it does not tell you when to enter a trade.

Technical Analysis

Technical analysis focuses on price movement.

This includes:

• trends
• patterns
• levels
• timing

This is how you decide:

when to enter
when to exit
whether a setup is valid

Technical analysis is what you will learn in Charting Basics

Putting It Together

Fundamentals help you understand risk.
Technicals help you make decisions.
This is how you evaluate a stock before taking a trade.

Individual stocks don't trade in isolation. They move with the overall market. To trade well, you need to know what the market is doing before you take a trade.

What is SPY

SPY is an ETF that tracks the S&P 500, the 500 largest US companies.
When traders say "the market is up" or "the market is down," they usually mean SPY.
SPY is the easiest way to see the overall market direction in one ticker.

Why SPY Matters For Your Trades

Most stocks follow the broader market.

• When SPY goes up → most stocks tend to go up
• When SPY goes down → most stocks tend to go down
• When SPY is choppy → individual setups fail more often

This means:
A strong market makes good setups work better
A weak market makes the same setups fail
A choppy market chops everyone up

👉 Always check SPY before taking a trade. It's your context.

What Moves the Market

The market reacts to economic data and central bank decisions. The biggest ones to know:

CPI (Consumer Price Index)

Measures inflation. Hot CPI = market often drops. Cool CPI = market often rallies.

PPI (Producer Price Index)

Measures inflation at the producer level. Similar reaction to CPI.

FOMC (Federal Reserve meetings)

The Fed decides interest rates. The market is extremely sensitive to these decisions.

NFP (Nonfarm Payrolls)

Monthly jobs report. Strong or weak job numbers move the market.

These events can move SPY 1-2% in minutes, which means your individual stocks move too.

Why It Matters For You

If you don't know a CPI report is dropping at 8:30 AM ET, you might enter a trade right before it and get stopped out by a market-wide move that had nothing to do with your stock.

Knowing what's coming protects you from being on the wrong side of macro moves.

👉 We post all upcoming macro events in #daily-market-brief every morning. Check it before you trade.

Now that you understand how the market works and how to evaluate stocks, the next step is learning how trades are actually placed.

Broker

To trade, you need a brokerage account.

A broker is the platform that allows you to:

buy and sell stocks
place orders
manage your money
track your positions

You can refer to the Brokerage & Platforms section for platform recommendations.

Paper Trading

Before using real money, you can practice with paper trading.

Paper trading means placing practice trades with fake money.

This helps you learn:

• how to enter a trade
• how to exit a trade
• how order types work
• how your platform feels in real time

You can paper trade directly inside TradingView, WITHOUT connecting to a broker.

This is helpful because you can practice reading the chart and placing trades in the same place.

Cash vs Margin Accounts

There are two main types of brokerage accounts.

Cash Account

A cash account means you trade using your own deposited money.

No borrowing
Lower risk
Simpler for beginners

This is the account type we focus on.

Margin Account

A margin account allows you to borrow money from the broker.

More buying power
More risk
Easier to overtrade

We don't trade on margin here. Margin involves borrowing money from your broker with interest, which makes it haram for most scholars.

Going Long vs Shorting

There are two ways people talk about trading stocks.

Going Long

Going long means you buy first and sell later. You make money if the stock goes up.

Example:
Buy at $10
Sell at $11
Profit = $1 per share

Shorting

Shorting is the opposite. You sell first (borrowing shares from your broker), then buy them back later. You make money if the stock goes DOWN.

Example:
Sell borrowed shares at $10
Buy them back at $9
Profit = $1 per share

The problem: shorting requires borrowing shares from your broker, which involves interest (riba), so it's not halal.

👉 In this Discord, we go long only.

Order Types

When placing trades, you need to understand how orders work.

An order is simply an instruction you send to your broker.

Market Order

A market order buys or sells immediately at the best available current price.

Example:
If a stock is trading around $10, a market order tries to buy it right away.

The benefit:
Fastest way to enter or exit

The risk:
You may not get the exact price you expected

Market orders only work during regular market hours.

Limit Order

A limit order lets you set the highest price you are willing to pay when buying, or the lowest price you are willing to accept when selling.

Example for buying:
Stock is trading around $10.
You place a buy limit order at $9.80.

That means:
“I only want to buy this stock at $9.80 or lower.”

The benefit:
More control over price

The risk:
You may miss the trade if price moves away

Limit orders are what you use during premarket and after-hours.

Stop Loss

A stop loss is an exit plan used to limit your loss if the trade goes against you.

Example:
You buy at $10.
Your stop loss is $9.50.

That means: "At $9.50 no matter what I'm out".

The goal is to avoid holding and hoping.

Stop loss orders are usually not reliable during premarket or after-hours.

Please see Risk & Execution for more details.

Trading vs Gambling

Trading is not random and it’s not based on chance.

When you take a trade, you should have a reason for it.
A setup, a level, a plan.

Gambling is clicking buttons and hoping.
Trading is following a process you understand.

Trading is a Skill

In the beginning, your goal should not be to make money.

It should be to:

• understand your setups
• execute them correctly
• build consistency

When you focus only on money, you rush trades and break rules.

When you focus on the process, the results come later.

Trading takes time to develop.
It requires discipline, patience, and the ability to follow rules even when you don’t feel like it.
Most people don’t fail because trading is “too hard.”
They fail because they don’t stay consistent long enough to improve.

Emotions in Trading

Trading will test you.

You will feel:

• fear when price moves against you
• greed when a trade is working
• impatience when nothing is moving

This is normal, this is also why you need a plan before you go into the trade.

Losses Are Part of Trading

You will take losing trades.
That does not mean something is wrong.
That does not mean your system doesn’t work.

Losses are built into trading.

What matters is keeping them small and not letting one trade turn into a big mistake.

What You Are Actually Trying to Do

You are not trying to win every trade.

You are trying to:

• follow your rules
• manage your risk
• improve over time

That is how consistency is built.

How We Trade in This Discord

Everything we do here is meant to be structured, consistent and aligned with halal principles.

We are not trying to take every move in the market.

We are focused on trading in a way that is:
controlled
repeatable
responsible

Cash Accounts Only

We trade using cash accounts.

This means:
no borrowing
no unnecessary risk
no dependence on leverage

It keeps things simple and controlled, especially while learning.

Going Long Only

We only trade stocks to the upside. We are not trying to profit from stocks going down.

Our focus is:
buying strength
selling into higher prices

Avoiding Gambling Behavior

We are not chasing random moves.

This includes:
jumping into parabolic pumps
entering trades without a clear setup
reacting emotionally to price

If a move doesn’t have structure, we stay out.

Trading Halal Stocks

We only trade stocks that are considered halal.

This includes avoiding:
companies involved in impermissible industries
setups that rely on interest-based strategies

👉 You can learn more about this in the #halal-vs-haram ⁠

Now that you’ve learned the basics of trading, the next step is understanding how to read a chart 📈

This is where everything starts to come together.

In the ⁠📈charting-basics section, you’ll learn how to:

read price movement
understand trends and structure
identify key levels
recognize strong vs weak moves