This is a guest post by the team at SimpleFX.
Margin trading is one of the most popular forms of investment worldwide. It has been transformed by the wider adoption of cryptocurrency, allowing people to invest globally without restrictions. Since 2014, when the SimpleFX trading and investing app was introduced, investors were offered the opportunity to multiply their returns via Bitcoin, Ethereum, Tether, and dozens of other coins.
The opportunity to make profits from the changing prices of currencies, stocks, commodities, gold, silver, and crypto is not without risks, but is real nonetheless. With margin trading, profits can be leveraged. Margin trading offers higher return potential regardless of…
- Price direction
- Trade size
Sounds great, but how to make the right call when to sell or buy an asset? There are three factors often worth considering:
- The fundamental value of an asset (company results and roadmap, and the strength of the economy of a currency)
- Technical chart analysis presenting historical trades.
- Macro, or micro newsflow
In this tutorial, we’ll introduce you to the basics of technical analysis. You can use it to time your trades better. You can combine this with news and fundamental analysis.
What is support and resistance?
BTCUSD is defending “$20k support” or “bulls are attacking $21k resistance”. What does this mean? These two words are some of the most common in trading.
The two levels are usually significant round numbers like $20,000 per Bitcoin or one dollar for one euro. But not always. Often support and resistance are set by other indicators.
If an asset is trending up, the price is often stopped at some levels, where investors decide to take profit. If you take profit at the resistance level, not only do you maximize gains and reenter the market at a better price.
The resistance level is formed when there are more sellers than buyers.
On the other hand, the support level is a critical point during a bear market, when the prices are going down. Still, many people prefer to focus on longer term asset performance. Think of Bitcoin maxis during the recent crypto sell-off. These traders are looking for “a bottom” where they can accumulate more assets at a discount.
When you can identify the support and resistance correctly, there are two approaches you can take:
- Trade the bounce
- Trade the break
In the first case, you assume the price will bounce from the resistance or support levels. You sell high and buy lower during the bull market. You buy low and sell higher (or accumulate) during the bear market.
In the second case, you assume that this time the support or resistance level will be breached this time. When this happens, the prices may rise sharply during the uptrend or dive during the downtrend.
Trend Lines and Channels
By connecting the support and resistance levels, you can create a trend line.
If you are able to draw these lines correctly, there is no limit to the potential gains available. The support levels here are called “valleys”, while the resistance levels are called “peaks.” If you identify the channel correctly, you can buy at the lowest price and sell at the highest. This is a mighty skill as you can make profits during bear markets.
The key is to identify the current trend. This depends on the timeframe. Often an asset is in an uptrend during 1 week and a downtrend in a 1-hour frame. So pick your timeframe accordingly.
The next step is to connect the prominent peaks and central valleys with a line.
The channels will also help you identify if an asset is trending up or down. A sideways trend is also possible, but these are not very attractive for margin traders as it’s always a coin toss whether the price goes up or down. In general, you want to identify a strong trend that will help you profit from buying low and selling high.
We hope you’ll find this short tutorial helpful. Remember that trend spotting rules seem simple, but you need a lot of practice to make them work. That’s why you need to look at a trading app that offers:
- A fully functional demo account, where you can invest virtual money and make as many mistakes as you need;
- A live account without minimum deposits and no trading fees, so you can train your trading skills with small amounts of real money.
- Finally, not too complex technical analysis drawing tools.
SimpleFX combines all these features, so why not try it now.
This is a guest post by the team at SimpleFX.
Disclaimer: This content is for informational purposes only. It is very important to do your own analysis before making any investment decisions based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.