Your trading results are influenced by various factors. Some are beyond your control, others you can work on. I will say more. You should work on them. Constant assessment of money and risk management strategies is essential. Taking care of your mental condition is no less important. But it will not be enough if you are not able to foretell the price movement in the nearest future.
Trading is, generally speaking, opening and closing transactions. You can either buy or sell. The decision of which one to choose should be based on market analyses.
The question remains how to conduct analyses to effectively open trading positions. Below you will find 6 powerful methods that should help you in improving your forecasts. Let's see what they are.
Analyse the trend with the chart patterns
One of the most popular methods of predicting the direction of the asset‘s price is the use of technical analysis. There are many patterns discovered which price bars create on the chart. These patterns can be used to predict the trend continuation or its reversal.
Below, you will find an example of the chart pattern. It is called the double bottom and belongs to the trend reversal patterns.
Follow economic news
Economic events influence market behaviour. Some cause minor changes, others trigger sudden large movements. This is the reason why it is a good idea to know what is going on in the world.
The good news is you do not have to spend hours watching and reading the reports from different places and then analysing whether they have an impact on the instrument you are currently trading. IQ Option offers quick access to important news and economic events. Click on the asset info icon and you will see the reports.
Start price action trading
You should continuously observe the price action on the chart. This will help you identify the best entry points for your trades and to understand the market better.
Generally, price action is a visual representation of bullish or bearish dominance in the market. Green or red candles create lows and highs on the price chart. In order to start price action trading, you should be able to recognise the support and resistance levels.
Use the support and resistance levels together with some candlesticks patterns. It will provide additional confirmation for entry points for your transactions.
In the example above a resistance line is drawn. You can notice bullish engulfing patterns in its area. They inform you about the impending reversal of the trend.
Catch trend reversals with Fibonacci
Fibonacci, known also as Leonardo Bonacci or Pisano was an Italian mathematician. He introduced the sequence of the numbers to the Western European world. These numbers shall also apply in trading.
Identify the low and high on the price chart. The rest of the Fibonacci levels will appear automatically. You can easily predict a trend reversal with them.
It might be a good idea to use the pending orders at some Fibonacci levels.
Find oversold and overbought areas with the oscillators
Oscillators are special indicators with which you can catch reversal points in the markets. In this group, you will find, among others, the Relative Strength Index (RSI), Commodity Channel Index (CCI), Stochastic, Average Directional Movement Index (ADX). Below, you will find an exemplary GBPUSD chart with the RSI and CCI attached to it.
Oscillators show the oversold and overbought zones. When the asset reaches one of these zones, it means the price has dropped or risen too much and it will most probably take the opposite direction soon.
Apply Moving Averages
Moving averages are the indicators that show visually the average price of the financial instrument over a specified period of time. For instance, the SMA with a period of 200 takes the last 200 candlesticks into its calculations.
When you add a simple moving average to your chart, you will soon notice that the price rises when the candlesticks are developing above the line and falls when the price bars are situated below the SMA line.
Trading is a never-ending learning process. Get the necessary knowledge about the markets, indicators and strategies. Improve your trading performance by implementing the methods described in today's article.
You do not have to limit yourself to one method only. It is possible to combine a few different ones to get the best results.
Try each and every one of them in the IQ Option demo account. This is a perfect place for your practice. Familiarise yourself with them and then start trading in the live IQ Option account to earn real profits.
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Wish you a great experience!
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