Trading electronic contracts is part of the global financial markets. For successful work in this field, you definitely need to learn how to analyze the market situation. It is a huge industry and almost everybody can engage in it. Electronic trading involves setting up an account with a brokerage of your choice, including providing your contact and financial information—to facilitate electronic transfers between your bank and the brokerage. Trading is not based on luck: successful traders base their decisions on financial tools, indicators, oscillators and reports. Successful trading requires understanding of how market works and that is why some mathematic skills are useful for beginning traders.
Even though to the outsider trading may seem uniform there are many types of trading: scalping, momentum, technical, fundamental, swing and etc. The worst thing the trader can do is random trading without any strategy and analysis.
Many people who want to try trading should start with learning about technical analysis because it is much easier than fundamental trading which requires knowledge of corporate events such as actual or anticipated earnings reports, stock splits, reorganizations, or mergers.
Technical traders focus on charts and graphs. They watch lines on stock or index graphs for signs of convergence or divergence that might indicate BUY or SELL. Even beginners can learn how to read support and resistance lines.
The Pocket Option terminal offers traders a complete set of tools to set up technical lines in just a couple of clicks. Additionally, it offers a free trading demo account is a fantastic way to gain experience with zero risk. Beginning traders should experiment with strategies before they find the successful one matching their investing knowledge and experience.
How to build technical lines and read trends?
Traders and analysts watch price changes in a company’s stock closely, as often this is the most visible barometer of the company’s financial health. Price change determines the trend in the market. Support and resistance represent key junctures where the forces of supply and demand meet. Prices are driven by excesses of supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. There are 3 types of the market:
- Growing Market. Market share prices are increasing. In such times, investors often have faith that the uptrend will continue over the long term. Ascending – the chart is moving up, which means that demand prevails;
- Falling Market. Share prices are continuously dropping, resulting in a downward trend that investors believe will continue, which, in turn, perpetuates the downward spiral.
- Flat Market. There is no movement in the market. There is approximately equal supply and demand.
The question is how to predict the market trends? The answer is that you can do it with technical lines. You can build support and resistance lines in the Pocket Option terminal by clicking on the “Build” icon.
Basic rules for support and resistance lines:
- Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. To build the support line you should determine the two minimum prices and connect them with a straight line.
- Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. Logic dictates that, as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance. To build the resistance line, find two maximum prices on the chart and connect them. It is important that the last point is lower than the previous one.
The Pocket Option terminal gives traders all tools to build the technical lines. To do so, select “Trend Line” in the “Build” menu, find and draw support or resistance lines.
Technical Trading with the Support and Resistance Lines
The most effective way to apply support and resistance is to monitor for breakdowns and breakouts. A breakdown is when a stock falls below support. A breakout is when a stock rises above resistance. Importantly, support and resistance levels are estimates and not necessarily exact prices.
General recommendations for trading on technical analysis:
- Buy (Call option) when the price “bounces” from the support level with an uptrend.
- Sell (Put option) when the price “bounces” down the resistance line with an down trend.
The expiration period should be equal to the time of formation of 2 candles. You can use any timeframe. The strategy is suitable for both short-term and long-term trading.
Observing and interpreting resistance and support lines help most technical analysis. A chart is a historical record of stock price movements plotted over a time period, like one day, one year, one decade, or even longer. In general, the support and resistance lines can become the basis of your successful strategy.
