Margin trading is one of the most popular forms of investment around the world. Cryptocurrency has been revolutionized, allowing people to invest globally without restrictions. Since 2014, when the SimpleFX trading and investing app was launched, everyone can multiply Bitcoins, Ethereum, Tether and dozens of other currencies by buying and selling different assets.
You can take advantage of changes in the prices of currencies, stocks, commodities, gold, silver and cryptocurrencies. With margin trading you can make a huge profit:
- It does not matter if the price is going up or down
- Even investing small amounts thanks to leverage.
That’s great, but how do you make the right decision when buying or selling an asset. There are two factors you should keep in mind:
- Fundamental value of the asset (corporate results and plans, strength of the currency economy, news affecting the price)
- Chart technical analysis with business history.
In this tutorial, we will introduce you to the basics of technical analysis. You can use it to improve the timing of your trades. You can combine it with fundamental news and analysis.
What is support and resistance?
BTCUSD is defending the “$20k support” or “the bulls attack the $21k resistance”. What does this mean? The two words are some of the most common in trading.
The two levels are usually important round numbers, such as $20,000 for bitcoin or $1 for 1 euro. But not always. Oftentimes, support and resistance are determined by other indicators.
If an asset is going up, the price usually stops at a few levels as investors decide to take profits. If you take profit at the resistance level, you will not only double the gains and re-enter the market at a better price.
A resistance level forms as there are suddenly more sellers than buyers.
On the other hand, support level is a critical point during a bear market when prices are falling. Many people still believe in long-term assets. Think of Bitcoin maxis during the recent cryptocurrency sell-off. These people are looking for a “fund” where they can accumulate more assets.
Draw trend lines on the BTCUSD chart in the SimpleFX investment app
When you can correctly identify support and resistance, there are two approaches you can take:
- Negotiate the jump
- Negotiate the interval
In the first case, you assume that the price will bounce off resistance or support levels. You sell high and buy low during a bull market. You buy low and sell high (or accumulate) during a bear market.
In the second case, you assume that this time the support or resistance level will be broken. When this happens, prices can rise sharply during an uptrend or fall during a downtrend.
Trend lines and channels
By connecting support and resistance levels, you can create a trend line.
Trend lines and channels used to trade in a downtrend for the AUDUSD currency pair
If you can draw these lines correctly, there is no limit to the winnings you can make. The support levels here are called the “valleys,” while the resistance levels are called the “highs.” If you select the channel correctly, you can buy at the lowest price and sell at the highest price. This is a powerful skill as you can profit during a bear market and multiply your deposit very quickly.
The key is to identify the current trend. It depends on the term. Often the asset will be in an uptrend within one week and in a downtrend within one hour period. So choose your term accordingly.
The next step is to connect the prominent peaks and central valleys with a line.
Trading channels for the USOIL 1-hour timeframe with the SimpleFX app
Channels will also help you determine whether an asset is bullish or bearish. A sideways trend is also possible, but this is not very attractive to margin traders because it is always a throwaway whether the price goes up or down. In general, you want to identify a strong trend that will help you profit by buying low and selling high.
We hope you find this short tutorial useful. Remember, the trend spotting rules seem simple, but you need a lot of practice to make them work. This is why you need to look for 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 real account with no minimum deposits and no trading fees, so you can train your trading skills with small amounts of real money.
- Finally, technical analysis drawing tools are not too complicated.
SimpleFX combines all of these features, so why not give it a try now.
Notice: This article is for informational purposes only, and does not constitute investment advice or an offer to invest. CriptoFácil is not responsible for any content, products or services mentioned in this article.
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