We have seen how, in the field of technical analysis, it is also necessary to consider in depth the psychological aspect that in fact can influence the market even in a more than decisive way.
The supports and resistances, which we will talk about in depth today, are therefore concepts that fit perfectly into this scenario, as they represent psychological price thresholds that can create blocks for the various market trends. Let's see how to first give it a practical definition. Diamone a more complete meaning.
The support level is in practice the technical price level at which sellers cannot prescribe new sales; the resistance level is the price level at which buyers cannot surpass.
When one of the two situations occur, there will most likely be a rise in prices and currencies (for supports) and vice versa (for resistances).
When a level of support or a level of resistance of a certain type "occurs" we will therefore be in the presence of a signal to be taken into serious consideration.
The trend of the technical analysis illustrates the direction taken by the daily prices within a given time frame. Identifying the trend is one of the fundamental tasks for each investor because it allows him to fully understand the direction taken by the market and the strength of the various players involved. Normally we can say that there are three types of trends:
Lateral: Prices stabilize within a lateral graphical path. In this case, the maximum and minimum are supports and resistances (which are not exceeded until the next trend change).
The trading range is a space circumscribed by a support trace and a resistance trace. In this case we can see that the price swayed between two static tracks, one in the part below and one in the one above, constituting zones of distribution or accumulation.
When the end of these phases (distribution or accumulation) is recorded, the price exceeds one of the two surrounding areas, forming the classic breakout. To understand whether this is legitimate, a volume analysis can be performed. They in fact should expand after the breakout.
As far as the interpretation of the trading range chart is concerned, we can say that volumes that expand when the price moves towards the top could make us notice a breakout of the part above.
We could place ourselves in a long way on the market at the breakout of the part above; in this way we would have the possibility of purifying probable false signals.
To be able to invest in a winning way with the trading range, it is necessary to refer to strategies of short duration. Scalping strategies can be used when prices move in the face of support or resistance. By giving an example, it is also possible to earn money for those who work with derivatives. In this case, it is possible to put in place winning strategies that take advantage of the decline in volatility and the passage of time. Regarding the different types of time we can distinguish (difference that heavily affects the investor):
Deciding to enter the financial market of forex is a very good idea if you have flair for business and a good analytical method. The market is almost like an open book if you can read it. This requires study, method and instinct. The first rule to follow when deciding to "enter into a position" or act on a currency, is to analyze the direction of the market and decide whether it is convenient to buy or sell according to the right trend.
The most trivial example is the one in which the EUR/USD pair increases in value, i.e. the market for that trade is uphill so what you have to do is buy and choose a long position, if on the contrary it is advisable to sell and therefore a short position.
To obtain more information on what to do, it is necessary to study the method of supports and resistances.
If we look at the price charts of a currency within a period, necessarily long otherwise our observation would be partial, we will notice that the price trend will tend to rise or fall. This is the main market trend.
If we decrease the observation period, we will have a smaller view of the trend. Trends can be of three types: bullish, bearish or lateral, the latter happens when the cross, that is the currency pair that interests us, oscillates horizontally. The concept of trend is linked to that of support and resistance.
Support is that level of currency price that counteracts the bearish trend and can be static or dynamic. In the first case it creates a real trend reversal; in the second it supports the bullish trend and creates new price peaks.
The resistance instead contrasts the trend that goes in the opposite direction to that of the support and that is, it contrasts the bullish trend. The resistance can also be both static and dynamic. It will be static when it creates the conditions for trend reversal and dynamic when it pushes the bearish trend to continue. Static Supports and Resistors are very important because they even manage to persist for months or years; dynamic ones instead change very easily.
There are tests to verify if a given cross is in any of the situations listed above. This test consists of testing the strength of the trend. If a bullish trend manages to pass the endurance test then the trend is strong and can continue on to further goals. The stronger the contrast strength of a substrate or resistance, the greater the strength of the trend at the end of the test.
The supports and resistances are not fixed, but they can even exchange the role. This happens when an outdated resistance becomes a support for the prices that have broken it, or a support becomes a resistance for the new bearish trend.
There are several methods to locate and trace in graphs. The first method to trace supports and resistances is based on the identification of a trend sequence with increasing minimums; identified the points trace the trend line, obtaining the Dynamic Support. Then, the trend sequence is identified with decreasing maximums and proceeding in the same way, that is tracing the trend line, the Dynamic Resistance is obtained. To help you with this method we recommend using the tools you find on online platforms, for example we recommend Metatrader4.
The second method involves the use of We-Point, an indicator that determines trends in forex currencies, stocks, indices or commodities.
The third and final method is obtained using the Ichimoku indicator and the Kumo curve. This method allows to trace static and horizontal supports and resistances.
In short, the method is clearly a more advanced one. However, if you really want to make forex trading your job, we suggest that you become familiar with this kind of intuitive and extremely useful tools.
As already mentioned, supports and resistances in forex identify the areas where a balance between buying and selling power occurs: when we face an increase in prices, it means that the strength of buyers takes precedence over that of sellers: the overcoming (breakout) of a certain level of resistance is caused by a strengthening of the demand line and marks that many buyers is willing to buy at higher prices.
Most technical analysis tools try to quantify the force of supply and demand, and price charts provide the best possible view of these moving forces.
In forex, media are used to wait for a bullish trend, the rebound of prices after a retreat. Resistors, on the other hand, are used to enter favor of a bearish trend or to demobilize the position into a bullish trend.
We have seen several concepts of online trading so far, including equity and ETF trading. Now let's see how to earn money thanks to trading in derivatives, one of the ways in some ways very different from other types.
Trading based on derivative securities differs first by the time period during which all the various trading operations on the market are oriented. In addition, equities and bonds effectively considered the economic exchange of real financial instruments; derivative trading, on the other hand, is nothing more than a transaction based on an investment promise oriented on the most plausible trend over time of an underlying security.
Before dealing with trading, it is good to talk about what derivatives are.
It is a set of financial instruments, but also actual contracts. With these instruments, the policyholder can acquire an underlying asset without being obliged to do so. The market price of the underlying is pre-determined on a specific date, after which it is considered to have expired.
Therefore, if derivative traders want to invest in a raw material such as gold, the easiest situation is to buy "physical" bullion or gold coins. However, this raises several issues, such as the risk of "theft" and the costs of storing the gold.
For this reason, the second financial option is to purchase a derivative contract, consisting for example of an option on gold or a futures contract. In this way, before purchasing the physical asset, we can obtain its possession by anticipating a percentage of the capital necessary for the purchase, through the leverage of derivatives.
Thanks to this type of financial trading with derivative securities, you can secure an advantage for the revaluation of the asset if the prices rise.
As far as traders' transactions are concerned, derivatives are indeed more complex instruments. In many cases there are parameters that you will need to consider: the leverage effect, the margins needed by the broker to better manage all positions, not to mention the temporal maturities that go into affecting the decay.
But if you are an experienced trader, derivatives will allow you more opportunities to trade and therefore much higher profit margins. In fact, if trading in equities allowed you to exploit only the upward and downward economic trends, derivative trading leaves the field open to the possibility of earning by investing in any condition.
In fact, thanks to the versatility of these financial instruments, you will be able to devise non-directional strategies, with the possibility of making money by simply counting the time that passes. The other side of the coin is obviously the risk of losing in the same way.
You will also can create trading strategies with derivatives by taking advantage of the volatility of securities and normal changes in the direction of the market.
As the essay said... "great responsibilities derive from great powers", so derivative trading allows great opportunities to those who have more trading skills on the derivatives market, both to create positions and to adapt to market crisis situations.
Open interest is a fundamental factor because it allows us to understand the direction in which the market is moving. It is an indicator used by all those who want to understand in depth the forecasts made on a financial instrument according to certain deadlines.
It compares open contracts on an underlying according to the different maturities. In this way, the investor can understand if there is a balance between the opening of call and put contracts (the data is stored as a spannometric indicator of market performance). If we want, we can also consider open interest as an indicator of the weakening and/or strengthening of market price trends.
The market is dominated by two alternating trends: the bullish and bearish trends. For an analyst to be able to understand the market trend, and to be able to predict the next trend is fundamental but complicated. There are many indicators that, if used in the same way, can give concrete predictions about what is going to happen to the market. Predicting as truthful a forecast as possible is very important because it gives the possibility to significantly reduce the risk in investments.
Today we will analyze the price movement that distinguishes every financial instrument. All this to give us the opportunity to predict more reliably the trend of the market on which we intend to invest.
Oggi parliamo di uno strumento, l'oscillatore stocastico, che rappresenta un utile indicatore atto a minimizzare la volatilità dei prezzi di un particolare strumento finanziario. Utilizzando questo strumento sarà più semplice, per l'investitore, leggere il mercato e trarne dei benefici pratici.
Continue our journey around some of the best known advanced trading strategies. In this case, we will analyze Bull Spread, a technique that is usually used if you have the feeling that the market is taking on bullish traits.