Foundations

The Basics, Before Module One

The vocabulary and plumbing the rest of this book assumes you already have.

Skip this one if you have been trading for a while — nothing here will be new. It exists because the rest of this playbook assumes a working vocabulary, and there is no reason to lose someone at “set your stop below the swing low” because nobody ever explained what a stop order actually is. None of this is strategy. All of it is plumbing.

What You Are Actually Buying

Order Types

There are only a handful you need, and choosing the wrong one is one of the quietest ways new traders lose money.

1. Market order — “fill me now, at whatever.” Guarantees you get in. Guarantees nothing about the price. Fine in a heavily traded name, genuinely dangerous in a thin one or in the first minutes after the open.

2. Limit order — “fill me at this price or better.” Guarantees the price, guarantees nothing about getting filled. This should be your default. If the trade only works at a price you cannot get, it was not your trade.

3. Stop (stop-market) — “get me out if it reaches this level.” Sits dormant until price touches your trigger, then becomes a market order. This is the one that enforces Module Two.

4. Stop-limit — a stop that becomes a limit order. Protects you from a terrible fill, at the cost of possibly not being filled at all in a fast move. Know the trade-off before you rely on it.

Bid, Ask and the Spread

At any moment there are two prices, not one. The bid is the highest price a buyer is currently willing to pay. The ask is the lowest price a seller will accept. The gap between them is the spread, and it is a real cost you pay on every round trip.

In a liquid name the spread is a cent or two and you will never think about it. In a thin stock or an unpopular options strike it can be wide enough to put you meaningfully underwater the instant you are filled — you have to be right by more than the spread before you have made anything. Check the spread before you like the chart.

The Trading Day

US equities trade 9:30am to 4:00pm Eastern, but the day is not uniform and treating it as though it is will cost you.

Account Rules That Catch People Out

• Cash vs margin. A cash account trades settled funds only; a margin account lets you borrow. Margin magnifies gains and losses identically, and margin interest is a real cost. There is no reason to start on margin.
• Settlement. Proceeds from a sale take time to settle. In a cash account, spending unsettled funds and then selling again triggers a good-faith violation — an easy accidental restriction to collect.
• Day-trading margin (US) — this changed in 2026. The Pattern Day Trader rule used to flag anyone making four or more day trades in five business days and force them to hold $25,000. FINRA replaced it on 4 June 2026: the PDT designation is gone, day trades are no longer counted, and the $25,000 minimum no longer exists. What applies now is ordinary margin — $2,000 minimum equity to trade on margin at all, and enough equity to cover your positions throughout the session rather than just at the close. Fall short and you have an intraday margin deficit to satisfy promptly; repeatedly failing to can get the account restricted for up to 90 days. Two catches. Brokers may phase the new framework in until October 2027, so yours might still be running the old rule — check rather than assume. And this covers US equities and equity options only; futures, forex and crypto were never under it.
• Fees are not only commissions. Spread, slippage, contract fees, exchange fees and — on any held position — the opportunity cost of the capital. Count all of it when you judge whether a strategy actually works.

None of this is an edge.
All of it is the price of admission to having one.