People say trading is child’s play. Well, it is one hundred percent true, if a trader is skilled. To be honest, it doesn’t need much to be skilled at trading. It doesn’t even require you to obtain any educational degree either. The only thing you need to be a good trader is a good technical analysis, a clear concept of money management, and good market management. If you have these skills, then you are good to go. To help the traders while trading, there is a huge variety of technical analysis tools to help them better understand the trend lines, volatility, etc.
Therefore, we can say that these technical analysis tools help to aid the traders in speculating the market before making any decision and investing. So, our today’s topic will cover some of the tools that would come in handy for the traders while technical analysis.
There are mainly four types of technical indicators that are mostly used by traders.
Trend following line
A trend line provides perfect support and resistance for the traders if it is drawn accurately. There are two major trends; the uptrend and the downtrend. The uptrend is used to indicate the rise in the value of a product while the downtrend is used to denote the fall in the price of that product.
By looking at these trends, the traders get to know the current condition of the market as well as the attitudes of other traders regarding the situation. Learn about the trend by visiting the website of Saxo and learn to trade trends like the UK traders.
To secure consistent profit, traders widely use trend following lines. These lines move in sequence with the current trends. Trend following line usually smoothen outs the small variables in the charts to make the market analysis easier for traders.
Simple Moving Averages and Exponential Moving Averages are two of the most popular trend-following lines practiced by the traders.
The indicator provides the trader with the idea of how the price range of a financial instrument is changing. This indicator shows the changes in momentum of values. The oscillator will move higher when the price is higher and in contrast, the oscillator will move lower when the value drops. Since this indicator always stays at extreme levels, it is not right to denote a horizontal line as the top or the bottom just because it reaches the overbought or oversold levels.
The Relative Strength Index is the most used oscillator to date where it determines the ratio between the average profit and average loss within the last 14 period.
Volatility is to measure the differences in values of any commodity created at any moment. If the value of commodity changes frequently, we can say that the price of the product is volatile or highly changeable. So, it is an important indicator for the traders to know if the value of any product is facing upswing, downswing, or remaining constant. The more volatile the value of a currency pair or any other commodity, the higher is its demand. Volatility is often indicated in terms of pips.
Support and resistance
The support and resistance are two of the basic key levels in any financial chart. These levels indicate the increase or decrease in the value of a currency pair as soon as they hit the line.
Support is the level where the value of a currency gets hit and moves upward. That means, the demand for that currency is increasing and the traders are now interested to buy the currency.
Resistance is the opposite of support where the value of an asset gets hit and falls downward while stating a fall in demand for the currency. The sign of a good trade is to buy at support and sell at resistance.
The technical indicators stated above are useful to find the major support and resistance level if they are utilized properly. So, it is very important to understand them to mark good trading.