There are several ways to generate a trading idea. Strategies can be driven by new information or historical price movements. One of the best ways to generate a trading decision or to manage your risk is to use technical analysis tools that can be found on the iFOREX trading app. Technical Analysis tools can help you find and entry level and manage your position risk through the life of your trade. Here are some of the ways that you can use these tools.
Support and Resistance
You can use support and resistance levels to enter a trade or manage your risk. Support is a level where prices are buoyed. You can use a horizontal trend line or and upward sloping trend line to find support. Resistance is a level where prices are capped. You can use a horizontal trend line or a downward sloping trend line to find resistance. Many traders also use moving averages to find support or resistance levels. A moving average is the average of the last “x” days. The shorter, the moving average the closer it will follow the price of the asset you are charting. A 10-day moving average will provide short term support and resistance levels. A 200-day moving average will provide long term support and resistance levels.
Finding a Trend
You can also use moving averages to find trends. One of the most popular ways is to look for a moving average crossover. For example, when the 5-day moving average crosses above the 20-day moving average a short term up trend is in place. When the 5-day moving average crosses below the 20-day moving average a short term down trend is in place. If you want to find a long term trend, you could use the 50-day moving average and the 200-day moving average. A moving average crossover strategy will generally show you the middle of a trend.
Momentum shows you the acceleration of prices. One of the most popular is the MACD (moving average convergence divergence) index. The MACD can be evaluated using a crossover strategy. The default for the MACD is the difference between the 12-day moving average, the 26-day moving average and the MACD sign line which is the 9-day moving average of the MACD line. When the MACD line crosses above the MACD signal line a buy signal is generated. When the MACD line crosses below the MACD signal line a sell signal is generated.
You can also use the MACD histogram. This is an index that fluctuates above and below the zero index level. You can also use the MACD histogram to generate buy and sell signals. When the MACD histogram rises above zero a buy signal is generated. When the MACD signal line declines below the zero index line a sell signal is generated.
By using the technical analysis tools on iFOREX you can generate trading ideas as well as manage your risk to generate the best trading strategies.