Deep-dive education on each market. Learn what makes each asset class unique and how to trade them effectively.
Options are financial contracts that give you the right, but not the obligation, to buy or sell an underlying asset at a specific price before a specific date.
Think of an option like a reservation deposit. You pay a small fee (premium) to lock in the right to buy something at today's price, even if the price goes up later. If the price drops, you simply don't use your reservation—you only lose the deposit.
Why trade options?
Key Insight: Options are a tool, not a strategy. They amplify both gains and losses—understanding them fully before trading is essential.
A Call Option gives you the right to buy the underlying asset at the strike price before expiration. You buy calls when you're bullish—expecting price to go up.
How Calls Make Money:
Example: AAPL is trading at $150. You buy the $155 call for $2.00 ($200 total).
Key Insight: Calls have unlimited upside potential but can expire worthless. Your max loss is the premium paid.
A Put Option gives you the right to sell the underlying asset at the strike price before expiration. You buy puts when you're bearish—expecting price to go down.
How Puts Make Money:
Example: SPY is trading at $450. You buy the $445 put for $3.00 ($300 total).
Puts as Insurance: Many traders buy puts to protect existing stock positions—like buying insurance against a crash.
Key Insight: Puts let you profit from downside without shorting stock. They're also powerful hedging tools.
The Strike Price is the price at which you can buy (call) or sell (put) the underlying asset. Choosing the right strike is crucial to your trade's risk/reward.
Moneyness describes the relationship between strike price and current stock price:
| Term | Call | Put | Characteristics |
|---|---|---|---|
| ITM (In The Money) | Strike < Stock Price | Strike > Stock Price | Has intrinsic value, more expensive, higher delta |
| ATM (At The Money) | Strike ≈ Stock Price | Strike ≈ Stock Price | Most time value, ~50 delta, most liquid |
| OTM (Out of The Money) | Strike > Stock Price | Strike < Stock Price | No intrinsic value, cheaper, lower probability |
Trade-offs:
Key Insight: OTM options are tempting because they're cheap, but they expire worthless more often. ATM/slightly ITM often offers better risk-adjusted returns.
Expiration Date is the last day an option can be exercised. After this date, the option ceases to exist—it either has value or expires worthless.
Common Expiration Cycles:
Time Value (Extrinsic Value): The portion of premium above intrinsic value. It represents the "possibility" that the option could become more valuable before expiration.
Time Decay (Theta): Time value erodes every day. This decay accelerates as expiration approaches—especially in the final 2 weeks.
Key Insight: Time works against option buyers and for option sellers. If you buy options, you're paying rent—make sure you have a plan before theta eats your premium.
An Options Chain displays all available options for a given underlying, organized by expiration and strike price. Learning to read it is essential.
Key Columns:
Layout: Calls on the left, Puts on the right (or vice versa). ITM options are often highlighted.
Bid-Ask Spread: The difference between bid and ask. Tighter spreads = more liquid = better fills. Avoid wide spreads (>10% of option price).
Key Insight: High open interest and tight bid-ask spreads indicate liquid options. Stick to liquid strikes for better execution.
Every option's premium consists of two components:
Intrinsic Value = Real, tangible value. The amount the option is in-the-money.
Extrinsic Value (Time Value) = Everything else. The "hope" premium based on time remaining and volatility.
Example: Stock at $100, $95 Call trading at $7.00
Key Insight: At expiration, only intrinsic value remains. Extrinsic value vanishes completely—this is why OTM options expire worthless.
You can either buy options (go long) or sell options (go short). Each has very different risk profiles.
| Aspect | Buying Options | Selling Options |
|---|---|---|
| Premium | You pay | You receive |
| Max Loss | Premium paid (defined) | Potentially unlimited* |
| Max Gain | Unlimited (calls) / Large (puts) | Premium received (defined) |
| Time Decay | Works against you | Works for you |
| Probability | Lower (~30-40% OTM) | Higher (~60-70% OTM) |
| Capital Req. | Just the premium | Margin/collateral required |
*Selling naked calls has unlimited risk. Selling puts risks assignment at strike.
When to Buy: Expecting big moves, want defined risk, trading momentum
When to Sell: Expecting low volatility, want income, probability on your side
Key Insight: ~80% of options expire worthless or are closed before expiration. Sellers win more often but buyers can win bigger.
Delta (Δ) measures how much an option's price changes for every $1 move in the underlying. It's the most important Greek for directional traders.
Delta Values:
Delta as Probability: Delta roughly approximates the probability of expiring ITM. A 0.30 delta call has ~30% chance of being ITM at expiration.
Delta as Share Equivalence: A 0.50 delta call controls the equivalent of 50 shares. 10 contracts × 0.50 delta = 500 share equivalent exposure.
Example: You own a 0.40 delta call. Stock moves up $2. Option gains approximately $0.80 ($80 per contract).
Key Insight: Delta changes as the stock moves (this is Gamma). ITM options have more stable deltas; OTM deltas fluctuate wildly.
Gamma (Γ) measures how fast Delta changes for every $1 move in the underlying. It's the "acceleration" of your option's directional exposure.
Gamma Characteristics:
Why Gamma Matters:
Example: ATM call with 0.50 delta and 0.05 gamma. Stock rises $1:
Key Insight: Gamma is your friend when long options (accelerates winners) but dangerous when short (accelerates losers). 0DTE options have extreme gamma.
Theta (Θ) measures how much value an option loses each day due to time decay. It's expressed as a negative number for long options.
Theta Characteristics:
Theta Decay Curve:
Example: Option worth $3.00 with -$0.10 theta loses $10 per contract per day, all else equal.
Weekend Decay: Theta technically decays over weekends too, though it's often priced in on Friday.
Key Insight: If buying options, give yourself enough time (21+ DTE minimum). If selling, target 30-45 DTE and close at 50% profit to maximize theta capture.
Vega (ν) measures how much an option's price changes for every 1% change in implied volatility (IV).
Vega Characteristics:
Why Vega Matters:
Example: Option with 0.15 vega. IV rises from 30% to 35% (+5 points):
Vega vs Theta Trade-off: Longer-dated options have more vega (good for IV plays) but also more premium at risk.
Key Insight: Don't just be right on direction—be right on volatility too. Buying high IV options means you need a bigger move to profit.
Rho (ρ) measures how much an option's price changes for every 1% change in interest rates. It's the least impactful Greek for most traders.
Rho Characteristics:
Why It's Usually Ignored:
When Rho Matters:
Key Insight: For most retail traders, rho can be safely ignored. Focus on delta, gamma, theta, and vega—they drive 99% of your P&L.
Implied Volatility (IV) is the market's forecast of how much the underlying will move. It's "implied" from current option prices—not calculated from historical data.
IV Basics:
Converting IV to Expected Move:
Example: $100 stock, 32% IV → $100 × 0.32 ÷ 15.87 = ~$2.00/day expected move
IV Drivers:
Key Insight: IV tells you how expensive options are relative to normal. Buying high IV means paying a premium; selling high IV means collecting a premium.
Knowing current IV is useless without context. IV Rank and IV Percentile tell you if IV is high or low relative to history.
IV Rank (IVR):
IV Percentile (IVP):
How to Use:
Key Insight: "High IV" means nothing without context. A 40% IV might be high for one stock and low for another. Always check IVR/IVP.
IV Crush is the rapid collapse of implied volatility after a known event (usually earnings). Even if you're right on direction, IV crush can destroy your position.
The Earnings Cycle:
Example of IV Crush:
Strategies to Avoid/Exploit IV Crush:
Key Insight: The stock can move your direction and you still lose money on long options after earnings. IV crush is the #1 earnings trade killer.
Volume and Open Interest (OI) reveal options market activity and liquidity. They're essential for finding tradeable strikes.
Volume:
Open Interest:
Using Volume & OI:
Key Insight: Follow the volume. Unusual options activity often precedes big moves—institutions leave footprints in the options chain.
Exercise is when you use your right to buy (call) or sell (put) shares at the strike price. Assignment is when you're forced to fulfill that obligation as an option seller.
Exercise (Option Buyer):
Assignment (Option Seller):
Early Assignment Risk:
Key Insight: Most traders close positions before expiration rather than exercise. If you don't want shares, close your ITM options before 4 PM on expiration Friday.
The Black-Scholes Model is the foundational formula for pricing European-style options. Published in 1973, it revolutionized options trading and won a Nobel Prize.
The Five Inputs:
The Formula (Simplified):
Where N(d) is the cumulative normal distribution function.
Key Assumptions (and Limitations):
Practical Use: You don't calculate this manually. Platforms use it (or variants) to price options and derive the Greeks.
Key Insight: Black-Scholes is imperfect but foundational. Its assumptions break down during extreme events—that's why far OTM puts often trade "expensive" (volatility smile).
Vertical Spreads involve buying and selling options of the same type (calls or puts) with the same expiration but different strikes. They define your risk and reduce cost.
Bull Call Spread (Debit):
Bear Put Spread (Debit):
Bull Put Spread (Credit):
Bear Call Spread (Credit):
Key Insight: Spreads cap your gains but also cap your losses and reduce capital requirements. They're the building blocks of most options strategies.
An Iron Condor is a neutral strategy that profits when the underlying stays within a range. It combines a bull put spread and a bear call spread.
Structure:
Example: Stock at $100
When to Use:
Management: Close at 50% profit or adjust if tested. Don't let it go to expiration.
Key Insight: Iron condors are high-probability trades (~70%+ win rate) but have negative skew—wins are small, losses are larger. Size appropriately.
A Butterfly is a low-cost, defined-risk strategy that profits from the stock landing at a specific price at expiration.
Long Call Butterfly:
Example: Stock at $100, buy 95/100/105 call butterfly for $1.00
Broken Wing Butterfly (BWB):
When to Use:
Key Insight: Butterflies are lottery tickets with great risk/reward. They rarely hit max profit but the cost is minimal. Great for expiration-day plays.
Calendar Spreads (Time Spreads) involve options at the same strike but different expirations. Diagonal Spreads use different strikes AND expirations.
Calendar Spread:
Example: Stock at $100
Diagonal Spread:
When to Use:
Key Insight: Calendars are long vega—they benefit from IV expansion. Don't use them before earnings unless you want to bet on an IV spike.
0DTE (Zero Days to Expiration) options expire the same day. They're extremely popular for day trading due to high leverage and rapid price movement.
Why Trade 0DTE:
The Risks:
Common 0DTE Strategies:
Best Practices:
Key Insight: 0DTE is not for beginners. The speed and leverage are intoxicating but can blow up accounts fast. Master longer-dated options first.
Rolling is closing your current option position and opening a new one—typically to extend duration, adjust strikes, or manage a losing trade.
Types of Rolls:
When to Roll:
Rolling Rules:
Key Insight: Rolling is trade management, not a get-out-of-jail card. Every roll should be evaluated as a new trade—if you wouldn't enter fresh, don't roll.
Futures are standardized contracts obligating the buyer to purchase (or seller to sell) an asset at a predetermined price on a specific future date. Unlike options, futures represent an obligation, not a right.
How Futures Work:
Common Futures Markets:
Key Insight: Futures are derivatives—their value derives from an underlying asset. They're used for speculation, hedging, and price discovery.
Futures offer several advantages over stocks and options that make them attractive for active traders:
Key Advantages:
Who Trades Futures:
Key Insight: Futures provide the cleanest price action of any market. With true supply/demand dynamics and no market maker games, technical analysis works exceptionally well.
Each futures contract has specific characteristics you must understand before trading:
| Contract | Underlying | Tick Size | Tick Value | Point Value |
|---|---|---|---|---|
| ES | S&P 500 | 0.25 | $12.50 | $50 |
| NQ | Nasdaq 100 | 0.25 | $5.00 | $20 |
| YM | Dow Jones | 1.00 | $5.00 | $5 |
| RTY | Russell 2000 | 0.10 | $5.00 | $50 |
| CL | Crude Oil | 0.01 | $10.00 | $1,000 |
| GC | Gold | 0.10 | $10.00 | $100 |
Understanding the Math:
Key Insight: Know your tick value cold. A 10-point move in ES ($500) feels very different from a 10-point move in CL ($10,000).
Micro futures are 1/10th the size of standard contracts, making futures accessible to smaller accounts and perfect for learning.
| Micro Contract | Standard Equivalent | Tick Value | Point Value |
|---|---|---|---|
| MES | ES (S&P 500) | $1.25 | $5 |
| MNQ | NQ (Nasdaq) | $0.50 | $2 |
| MYM | YM (Dow) | $0.50 | $0.50 |
| M2K | RTY (Russell) | $0.50 | $5 |
| MCL | CL (Crude) | $1.00 | $100 |
| MGC | GC (Gold) | $1.00 | $10 |
Benefits of Micros:
Example: Instead of 1 ES contract ($12.50/tick), trade 2 MES ($2.50/tick combined) for similar exposure with more flexibility.
Key Insight: Start with micros. There's no shame in trading MES—many professional traders use them for precise position sizing.
Futures trade nearly around the clock, but not all hours are created equal:
CME Equity Index Futures (ES, NQ, etc.):
Key Trading Sessions:
Best Times to Trade:
Key Insight: Just because you CAN trade 24 hours doesn't mean you should. Focus on high-volume sessions for best fills and cleaner price action.
Futures enjoy preferential tax treatment under IRS Section 1256, known as the 60/40 rule:
How It Works:
Example (Assuming 35% income bracket, 15% LTCG):
Additional Benefits:
Key Insight: For active traders in higher tax brackets, the 60/40 rule can save thousands annually. Consult a tax professional for your specific situation.
Understanding the differences helps you choose the right instrument for your strategy:
| Feature | Stocks | Options | Futures |
|---|---|---|---|
| Market Hours | 9:30 AM - 4 PM | 9:30 AM - 4 PM | Nearly 24/5 |
| PDT Rule | Yes ($25K min) | Yes ($25K min) | No |
| Leverage | 2:1 (margin) | Built-in | ~20:1 or more |
| Time Decay | None | Yes (theta) | None |
| Expiration | None | Yes | Yes (quarterly) |
| Tax Treatment | Short/Long-term | Short/Long-term | 60/40 |
| Complexity | Low | High | Medium |
When to Use Each:
Key Insight: Many traders use all three. Futures for intraday, options for swing trades with defined risk, stocks for longer-term positions.
Futures margin is a performance bond, not a loan like stock margin. It's the capital required to hold a position.
Types of Margin:
Example (ES Futures):
Margin Calls:
Day Trade vs Overnight:
Key Insight: Low day trade margin is seductive but dangerous. A gap against you can wipe out an underfunded account before you can react.
Futures offer substantial leverage—ES at 5000 controls $250,000 notional with ~$12,000 margin (~20:1 leverage). This is powerful but dangerous.
Calculating Position Size:
Example:
Position Sizing Rules:
Leverage Trap:
Key Insight: Professional futures traders often use less leverage than their account allows. Survival comes first—profits follow.
Understanding tick value is essential for risk management. Every futures contract has a minimum price movement (tick) with a specific dollar value.
Calculating Dollar Risk:
ES Example:
Quick Reference - Risk per Point:
Pro Tip: Create a cheat sheet with tick values for your traded contracts. In the heat of trading, you need instant recall.
Key Insight: Always know your dollar risk before entering. "About 5 points" isn't good enough—know exactly: 5 points = $250 on ES, $100 on MES.
Futures contracts expire quarterly. Traders must roll to the next contract to maintain exposure.
Equity Index Expiration Months:
Contract Naming: ESH25 = E-mini S&P 500, March 2025
Rollover Timing:
How to Roll:
Why Prices Differ: Front month and next month trade at slightly different prices due to cost of carry, dividends, and interest rates.
Key Insight: Don't get caught holding an expiring contract. Mark roll dates on your calendar and switch when volume does—usually 8-10 days before expiration.
The front month is the nearest expiration contract; back months are further out. Most trading occurs in the front month.
Front Month Characteristics:
Back Month Characteristics:
When to Use Back Months:
Continuous Charts: Most charting platforms splice contracts together for continuous price history. Understand adjustments when analyzing long-term charts.
Key Insight: Stick to front month for day trading and short-term trades. The liquidity difference is significant—back months can have noticeably worse fills.
How a futures contract settles at expiration determines what happens if you hold to expiry.
Cash Settlement:
Physical Settlement:
Physical Delivery Warning:
Why It Matters: Cash-settled contracts like ES can technically be held to expiration safely. Physical contracts require careful attention to roll dates.
Key Insight: For commodity futures, know your First Notice Day and roll BEFORE it. Your broker may charge fees or close positions automatically if you don't.
Spread trading involves simultaneously buying and selling related futures contracts to profit from the price difference between them.
Types of Spreads:
Why Trade Spreads:
Example - ES/NQ Spread:
Key Insight: Spreads are a professional's tool for expressing relative value views. They're lower risk but require understanding correlations between contracts.
Volume Profile displays trading activity at each price level, revealing where significant buying and selling occurred.
Key Concepts:
How to Use Volume Profile:
Time Frames:
Key Insight: Volume Profile shows WHERE trading happened, not just WHEN. It's one of the most powerful tools for futures traders—especially for identifying support/resistance.
The relationship between futures prices across different expirations reveals market expectations and creates trading opportunities.
Contango:
Backwardation:
Practical Implications:
Trading the Term Structure:
Key Insight: Understanding term structure is crucial for holding futures positions beyond a day. Contango silently erodes long positions over time.
The Commitment of Traders (COT) report shows positioning of different trader categories, published weekly by the CFTC.
Trader Categories:
Key Metrics:
How to Use COT Data:
Limitations:
Key Insight: COT is a sentiment indicator, not a timing tool. Use it to gauge crowding and potential reversals, but don't trade it alone.
Market internals measure the underlying breadth and strength of market moves beyond just price. Essential for index futures traders.
NYSE TICK ($TICK):
Advance/Decline (ADD, $ADD):
Volume Differential (VOLD, $VOLD):
How to Use Together:
Key Insight: Internals tell you the health of a move. Price can lie; breadth is harder to fake. Use internals to confirm entries and spot exhaustion.
Markets don't move in isolation. Understanding intermarket relationships helps anticipate moves and confirm analysis.
Key Correlations:
Using Correlations:
Correlation Regimes:
Key Insight: Before going long ES, glance at NQ, bonds, and VIX. Are they confirming? Disagreeing markets often resolve in unexpected ways.
Most futures volume comes from algorithms. Understanding order flow helps you read institutional activity and avoid traps.
Order Flow Concepts:
Reading the Tape:
Tools for Order Flow:
Warning: Order flow is advanced. The DOM can be spoofed, orders can be pulled. It takes significant screen time to read accurately.
Key Insight: Price shows WHAT happened; order flow shows HOW it happened. Understanding the aggression behind moves gives you an edge—but it's a skill that takes years to develop.
Forex (FX) is the foreign exchange market—the global marketplace for trading national currencies. It's the largest and most liquid financial market in the world, with over $7 trillion traded daily.
How Forex Works:
Key Characteristics:
Key Insight: Forex is macro-driven. Unlike stocks, currencies move on interest rates, economic data, and geopolitical events. Understanding central bank policy is essential.
Currency pairs are categorized by liquidity and trading volume:
Major Pairs (Most Liquid):
Minor/Cross Pairs:
Exotic Pairs:
Key Insight: Stick to majors when learning. EUR/USD and GBP/USD have the tightest spreads and most predictable behavior.
A pip (percentage in point) is the smallest standard price move in forex—essential for calculating profits and risk.
Pip Values:
Pipettes (Fractional Pips):
Calculating Pip Value:
Standard Pip Values (USD account, standard lot):
Key Insight: Always know your pip value before trading. A 50-pip stop on EUR/USD costs $500 on a standard lot, $50 on a mini, $5 on a micro.
Forex is traded in lots—standardized contract sizes that determine your position value:
| Lot Type | Units | EUR/USD Pip Value | 50-Pip Move |
|---|---|---|---|
| Standard | 100,000 | $10 | $500 |
| Mini | 10,000 | $1 | $50 |
| Micro | 1,000 | $0.10 | $5 |
| Nano | 100 | $0.01 | $0.50 |
Choosing Lot Size:
Common Mistakes:
Key Insight: Start with micro lots. Even experienced traders use small sizes when testing strategies. Capital preservation is job #1.
Every forex quote has two prices—the bid and ask—and the difference is your transaction cost.
Definitions:
Example: EUR/USD quoted at 1.0850/1.0852
Spread Factors:
Typical Spreads (Normal Conditions):
Key Insight: You start every trade at a loss equal to the spread. Tight spreads matter—they're the "rake" you pay on every trade.
Leverage allows you to control large positions with small capital. Forex offers some of the highest leverage of any market.
How Leverage Works:
Leverage Limits by Region:
The Leverage Trap:
Key Insight: Leverage is a tool, not a strategy. Use it to free up capital, not to maximize position size. The graveyard is full of traders who used "max leverage."
Your broker's business model affects your execution, spreads, and potential conflicts of interest.
Market Maker (Dealing Desk):
ECN/STP (No Dealing Desk):
Hybrid Brokers:
What to Look For:
Key Insight: ECN is generally better for serious traders. The tighter spreads and lack of conflict outweigh the small commission cost.
Forex trades 24 hours, but activity varies dramatically by session. Understanding sessions helps you trade the right pairs at the right times.
The Three Major Sessions (ET):
Session Characteristics:
Best Trading Windows:
Key Insight: Trade when your pairs are "awake." EUR/USD at 2 AM ET is a different beast than at 10 AM ET. Match your strategy to session characteristics.
When two sessions overlap, liquidity and volatility increase significantly. These are often the best trading opportunities.
Key Overlaps:
Why Overlaps Matter:
London/NY Overlap Strategy:
Key Insight: If you can only trade 4 hours a day, trade 8 AM - 12 PM ET. You'll catch the most volume, tightest spreads, and clearest setups.
Currency pairs often move together (positive correlation) or opposite (negative correlation). Understanding correlations prevents accidental overexposure.
Strong Positive Correlations:
Strong Negative Correlations:
Why Correlations Matter:
Warning: Correlations change over time and can break down during market stress.
Key Insight: Before taking multiple forex positions, check correlations. Two "different" trades might be the same bet in disguise.
Safe haven currencies tend to strengthen during market uncertainty, fear, and risk-off environments.
Traditional Safe Havens:
When Safe Havens Strengthen:
Risk-On vs Risk-Off:
Trading Implications:
Key Insight: Forex doesn't exist in a vacuum. Watch equity markets—S&P 500 direction often predicts JPY cross movement.
Commodity currencies are tied to countries whose economies depend heavily on commodity exports.
Major Commodity Currencies:
Key Correlations:
Trading Commodity Currencies:
Key Insight: Trading AUD/USD? Check iron ore prices and Chinese PMI. Trading USD/CAD? Watch crude oil. The commodity tells you where the currency is heading.
Interest rate differentials are the primary driver of currency values. Higher rates attract capital, strengthening the currency.
Major Central Banks:
What Moves Currencies:
Trading Central Bank Events:
Key Insight: Currency markets are forward-looking. It's not about current rates—it's about where rates are going. Learn to read central bank statements.
Economic data releases cause the biggest moves in forex. Knowing the calendar is essential for timing and risk management.
High-Impact Events:
Trading Around News:
Reading the Numbers:
Key Insight: The market reaction to news tells you more than the news itself. A "good" number that causes selling reveals hidden weakness.
Swap (or rollover) is the interest paid or earned for holding a forex position overnight, based on interest rate differentials.
How Swap Works:
Triple Swap Wednesday:
Positive vs Negative Swap:
Swap Considerations:
Key Insight: Check your broker's swap rates before swing trading. Negative swap on a multi-week hold can eat significantly into profits.
The carry trade exploits interest rate differentials—borrowing in low-rate currencies to invest in high-rate currencies.
Classic Carry Trade:
Popular Carry Pairs (Historically):
Carry Trade Risks:
Key Insight: Carry trades are like "picking up pennies in front of a steamroller." Steady gains until sudden, violent reversals. Size appropriately and have stops.
Central banks sometimes directly intervene in forex markets to strengthen or weaken their currency.
Types of Intervention:
Why Central Banks Intervene:
Notable Interventions:
Trading Around Intervention:
Key Insight: Never fight a central bank with unlimited resources in the short term. But remember: intervention usually delays the inevitable, not prevents it.
The US Dollar Index (DXY) measures USD against a basket of major currencies—essential for understanding broad dollar strength.
DXY Composition:
Why DXY Matters:
Using DXY in Trading:
Key Insight: DXY is EUR-heavy, so it largely mirrors EUR/USD inverted. For a truer dollar picture, also watch USD/JPY and USD/CHF.
Intermarket analysis examines relationships between forex, bonds, commodities, and equities to forecast currency moves.
Key Relationships:
Yield Spread Trading:
Risk Sentiment Framework:
Key Insight: Forex doesn't exist in isolation. The best forex traders watch bonds, equities, and commodities. Convergence across markets gives high-conviction trades.
News trading capitalizes on the volatility around economic releases. High reward but high risk.
Types of News Trades:
The Reality of News Trading:
If You Must Trade News:
Better Approach:
Key Insight: Most retail traders lose money trading the news spike. The edge is in trading the aftermath—once direction is clear and spreads are normal.
Cryptocurrency is digital money secured by cryptography, operating on decentralized blockchain networks. As a trading asset, crypto offers unique opportunities and risks.
Key Characteristics:
How Crypto Differs from Traditional Markets:
Getting Started:
Key Insight: Crypto amplifies everything—gains, losses, emotions. The 24/7 nature is a trap for overtrading. Have strict rules and stick to them.
Bitcoin (BTC) is the original cryptocurrency. Everything else is an "altcoin" (alternative coin).
Bitcoin:
Ethereum (ETH):
Other Altcoins:
Trading Considerations:
Key Insight: BTC is crypto's reserve currency. When BTC dumps, almost everything dumps harder. Master BTC before gambling on altcoins.
You can trade crypto on centralized exchanges (CEX) or decentralized exchanges (DEX). Each has trade-offs.
Centralized Exchanges (CEX):
Decentralized Exchanges (DEX):
Hybrid Approach:
Key Insight: "Not your keys, not your coins." CEX is convenient but you're trusting them with your funds. Remember FTX—counterparty risk is real.
A crypto wallet stores your private keys—the passwords that control your crypto. Security is paramount.
Hot Wallets (Connected to Internet):
Cold Wallets (Offline):
Security Best Practices:
Key Insight: You can recover from a bad trade. You cannot recover from losing your seed phrase or getting hacked. Security first, always.
Understanding order types helps you execute trades efficiently and manage risk.
Basic Order Types:
Advanced Order Types:
Crypto-Specific Considerations:
Key Insight: Use limit orders for entries when possible. Use stop-market for exits—guaranteed fill is more important than perfect price when exiting.
Crypto never sleeps. This creates unique opportunities and challenges compared to traditional markets.
Advantages:
Disadvantages:
Managing 24/7 Trading:
Peak Activity Times (ET):
Key Insight: Just because you CAN trade 24/7 doesn't mean you should. The most successful crypto traders have strict schedules and boundaries.
Bitcoin Dominance (BTC.D) measures Bitcoin's market cap as a percentage of total crypto market cap. It's a key indicator of market dynamics.
How to Read BTC Dominance:
Market Phases:
Trading Implications:
Key Insight: Don't chase alt season at the top. When dominance is at cycle lows, it often means alts are about to crash. BTC dominance rising is a warning sign.
Altcoins are highly correlated to Bitcoin. Understanding this relationship is crucial for position management.
The Correlation Dynamic:
Beta to Bitcoin:
Portfolio Implications:
When Correlation Breaks:
Key Insight: Before trading altcoins, check what BTC is doing. Fighting the BTC trend with an altcoin position rarely ends well.
Perpetual futures (perps) are crypto's most traded derivative—futures contracts that never expire.
How Perps Work:
Key Concepts:
Cross vs Isolated Margin:
Popular Perp Exchanges:
Key Insight: Perps are powerful but dangerous. Most retail traders lose money on leveraged perps. Start with spot trading; add perps only after consistent profitability.
Funding rates are periodic payments between long and short perpetual futures traders, keeping perp prices aligned with spot.
How Funding Works:
Reading Funding as Sentiment:
Funding Rate Extremes (Annualized):
Trading Implications:
Key Insight: Funding is a sentiment indicator. When everyone is paying to be long, ask who's left to buy. Extreme funding = crowded trade.
Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to USD. They're essential for crypto trading.
Major Stablecoins:
Types of Stablecoins:
Why Stablecoins Matter for Traders:
Risks:
Key Insight: Not all stablecoins are equal. USDC is generally safest for US traders. Never hold more in any single stablecoin than you're willing to lose.
Understanding market cap and volume helps you assess liquidity, risk, and manipulation potential.
Market Cap Tiers:
Fully Diluted Valuation (FDV):
Volume Analysis:
What to Watch:
Key Insight: Market cap tells you size; volume tells you activity. A $1B market cap with $10M daily volume is very different from one with $500M volume.
Crypto markets follow roughly 4-year cycles, largely tied to Bitcoin's halving events.
The Bitcoin Halving:
Typical Cycle Phases:
Historical Performance (BTC):
Caution: Past cycles don't guarantee future results. Each cycle has unique characteristics. Institutions changed the game.
Key Insight: "Time in the market beats timing the market" is questionable in crypto. Understanding where you are in the cycle is valuable—but no one rings a bell at the top.
On-chain analysis examines blockchain data to understand market dynamics—a unique advantage of transparent crypto markets.
Key On-Chain Metrics:
Exchange Flow Analysis:
Holder Behavior:
Tools: Glassnode, CryptoQuant, Santiment, Nansen
Key Insight: On-chain data shows what participants ARE doing, not what they SAY they're doing. It's like having everyone's brokerage statement public.
Whale watching tracks large wallet activity to anticipate market moves before they happen.
Who Are Whales:
What to Track:
Whale Alert Services:
Limitations:
Key Insight: Whale watching is about probabilities, not certainties. Large exchange inflows don't guarantee dumps—but they shift the odds.
DeFi (Decentralized Finance) recreates financial services on blockchain—trading, lending, borrowing without intermediaries.
Key DeFi Components:
Trading-Relevant DeFi:
Risks:
Key Insight: DeFi offers opportunities not available in TradFi, but "code is law" means bugs are irreversible. Only use battle-tested protocols with significant TVL and audits.
Liquidation cascades occur when forced position closures trigger more liquidations, creating violent price moves.
How Cascades Work:
Identifying Liquidation Levels:
Trading Cascades:
Tools: Coinglass, Hyblock Capital, Kingfisher
Key Insight: Liquidation cascades are when leverage traders get wrecked. If you're not using leverage, cascades are opportunities. If you are, they're existential threats.
Crypto regulation is evolving rapidly. Understanding the landscape helps you anticipate market-moving events and compliance requirements.
Key Regulatory Bodies:
Major Regulatory Events:
Trading Implications:
Staying Compliant:
Key Insight: Regulation is coming regardless of ideology. Position for it. Coins that can't pass regulatory scrutiny are risky long-term holds.
Stocks represent ownership shares in a company. When you buy stock, you own a piece of that business and share in its profits (or losses).
How Stocks Work:
Key Stock Exchanges:
What Moves Stock Prices:
Key Insight: Individual stocks are affected by both company-specific news AND overall market direction. Even great companies fall in bear markets.
ETFs (Exchange-Traded Funds) are baskets of securities that trade like individual stocks. They offer diversification with the simplicity of stock trading.
How ETFs Work:
Types of ETFs:
ETF Advantages:
Key Insight: ETFs let you trade the market or sector without picking individual stocks. SPY and QQQ are among the most liquid securities in the world.
Stock indices measure the performance of a group of stocks. They're the benchmarks traders watch to gauge market health.
The Big Four:
| Index | Stocks | Weighting | Character |
|---|---|---|---|
| S&P 500 (SPX) | 500 large-cap | Market cap | Broad market benchmark |
| Nasdaq 100 (NDX) | 100 non-financial | Market cap | Tech-heavy, more volatile |
| Dow Jones (DJI) | 30 blue chips | Price-weighted | Old economy, less relevant |
| Russell 2000 (RUT) | 2000 small-cap | Market cap | Small caps, risk appetite |
What Each Tells You:
Divergences to Watch:
Key Insight: Don't just watch one index. Comparing how indices move relative to each other reveals market internals and potential rotations.
These ETFs track the major indices and are the most actively traded securities for index exposure:
| ETF | Tracks | Avg Volume | Options |
|---|---|---|---|
| SPY | S&P 500 | 80M+ shares | Most liquid |
| QQQ | Nasdaq 100 | 50M+ shares | Very liquid |
| IWM | Russell 2000 | 25M+ shares | Liquid |
| DIA | Dow Jones | 3M+ shares | Moderate |
SPY vs SPX:
Leveraged Alternatives:
Key Insight: SPY and QQQ options are incredibly liquid with tight spreads. They're the go-to for index option traders.
US stock markets have specific hours, plus extended sessions for those who need to trade outside regular hours.
Regular Trading Hours (ET):
Extended Hours:
Key Time Windows:
Extended Hours Risks:
Key Insight: The opening hour (9:30-10:30) often sets the tone for the day. Most professional day traders focus here and the last hour.
The PDT Rule is a FINRA regulation that affects how often you can day trade with a margin account under $25,000.
The Rule:
Consequences of PDT Violation:
Ways Around PDT:
PDT Does NOT Apply To:
Key Insight: PDT frustrates small account traders, but it exists because most day traders lose money. Consider swing trading until you have $25K, or trade futures.
Understanding order types helps you execute efficiently and protect your positions.
Basic Orders:
Time-in-Force Options:
Advanced Orders:
Key Insight: For liquid stocks (SPY, AAPL, etc.), market orders are fine. For less liquid stocks, always use limits to avoid bad fills.
Earnings season is when publicly traded companies report quarterly results. It's the most volatile time for individual stocks.
Earnings Calendar:
What Moves Stocks on Earnings:
Typical Earnings Behavior:
Trading Approaches:
Key Insight: Earnings are gambling unless you have an edge. Most retail traders should avoid holding through earnings or trade the post-earnings trend instead.
Rather than gambling on earnings direction, many traders use strategies around earnings that don't require predicting the move.
Pre-Earnings Strategies:
Post-Earnings Strategies:
Post-Earnings Drift:
What Doesn't Work:
Key Insight: The best earnings trade is often the day AFTER—once direction is established and IV has crushed, the trend often continues.
Sector rotation is the flow of money between different sectors based on economic cycles and market conditions.
Major Sector ETFs (SPDR):
Economic Cycle Rotation:
Using Sector Rotation:
Key Insight: Money doesn't leave the market—it rotates. When tech is selling off, look for where the money is going. Sector ETFs make rotation tradeable.
Market capitalization (stock price × shares outstanding) determines a company's size category and affects its trading characteristics.
Market Cap Tiers:
| Category | Market Cap | Examples | Characteristics |
|---|---|---|---|
| Mega Cap | $200B+ | AAPL, MSFT, GOOGL | Most stable, liquid |
| Large Cap | $10-200B | Most S&P 500 | Stable, good liquidity |
| Mid Cap | $2-10B | S&P 400 | Growth potential, moderate risk |
| Small Cap | $300M-2B | Russell 2000 | Higher volatility, less coverage |
| Micro Cap | <$300M | OTC, small exchanges | High risk, low liquidity |
Trading Implications:
Size Factor:
Key Insight: Match position size to stock liquidity. A 1000-share order in AAPL is nothing; in a micro-cap it could move the stock.
Dividends are cash payments companies make to shareholders. Understanding dividend mechanics affects both stock and options trading.
Key Dividend Dates:
Ex-Dividend Behavior:
Options and Dividends:
Dividend Yield:
High Yield Caution: Very high yields often indicate dividend at risk of being cut.
Key Insight: If you're short calls on a dividend stock, know the ex-dividend date. Early assignment risk is real—especially for deep ITM calls the day before.
Short selling lets you profit from falling prices by borrowing shares, selling them, and buying back cheaper (hopefully).
How Short Selling Works:
Borrow Rates:
Short Selling Risks:
Locate Requirement:
Key Insight: Check the borrow rate before shorting. A 50% annual borrow rate on a stock that doesn't move means you're paying to lose money.
Dark pools are private exchanges where institutional investors trade large blocks without displaying orders publicly.
Why Dark Pools Exist:
Types of Dark Pools:
Dark Pool Data:
Trading Implications:
Key Insight: When you see a large "print" on the tape but price doesn't move, it's likely a dark pool trade. Follow the big money—they use dark pools.
Index rebalancing occurs when indices add, remove, or adjust stock weights. It creates predictable trading flows.
Types of Rebalancing:
Major Index Changes:
Trading Rebalancing:
Russell Reconstitution:
Key Insight: Index rebalancing is forced, price-insensitive buying/selling. It's one of the few predictable flows in markets. The Russell recon in June is the biggest event.
VWAP (Volume Weighted Average Price) is the average price weighted by volume—the benchmark institutions use to measure execution quality.
VWAP Formula:
Why VWAP Matters:
Using VWAP in Trading:
Institutional Execution Algorithms:
Key Insight: VWAP is where institutions want to buy/sell. When price pulls back to VWAP in an uptrend, institutions often step in—making it a high-probability entry.
The relationship between stocks and bonds reveals important macro dynamics and risk sentiment.
Traditional Correlation:
When Correlation Changes:
Key Relationships to Watch:
Trading Implications:
Key Insight: The bond market is often smarter than the stock market. When bonds and stocks disagree, pay attention to bonds—they're usually right.
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