Basic trading strategies uncovered: Key levels and trends

Julie Brownlee, Fsp Invest, 08 May. 2015

Tags: trading, trading strategies, trends, resistance, support, technical analysis, basic technical analysis, trade,

Many traders find technical analysis a useful way to find trades. Technical analysis involves using charts to try to predict where the price of an asset is going.

Support and resistance form the basis of much technical analysis. And these important levels can tell you a lot about what’s going on with an asset’s price.

And trends are also a crucial aspect of trading with technical analysis.

Let’s take a closer look…

How an asset’s price moves about on charts

If you look at the price action of any asset on a chart, you’ll notice that it zigs and zags as it goes along. Very rarely does it move in a straight line.

When it comes to using technical analysis for trading, one key concept is support and resistance.

The last highest point an asset’s price makes when it’s moving higher becomes a resistance level. The last lowest point that an asset’s price makes when it’s moving higher becomes a support level.

Have a look at the chart below…

Chart of support and resistance levels

You can see the support and resistance levels marked on the chart above. These are levels where the price of an asset stops and retraces. These levels become significant.

Whenever the price of an asset tries to break through these levels, it has a tendency to fail.

This information can help you to put trades on, Frank Hemsley in Profit Watch explains.

Trade with the market trend

Another key concept in technical analysis is that the prices of assets have a high tendency to move in trends.

If you trade with the trend, you can potentially profit from it. So how can you spot trends?

You can either look for uptrends or downtrends:

  • To spot uptrends, you want to see a series of higher highs and higher lows.
  • To spot downtrends, you want to see a series of lower lows and lower highs.

As the old stock market adage goes, the trend is your friend. And by trading with the trend, you should pick up some profits along the way.

So there you have it. Key levels and trends.

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