5 important laws of technical analysis

4 min read

John Murphy is an icon of technical analysis and a talented writer. This article is a collection of his suggestions for traders.

1. Map the trend

The trend is not always easy to identify. Sometimes it is necessary to use various technical analysis tools to find it. What apparently might seem a flat movement in the short term could prove to be a long-term trend. Even if you dedicate yourself to trading on reduced time intervals it might be helpful to understand the big picture and act accordingly. This method will also help you get rid of the "noise" of the price.

What apparently might seem a flat movement in the short term could prove to be a long-term trend

2. Draw the line

As soon as you have determined the trend direction, tap it with a line or two. The line must connect the points on the price chart. The downward trend consists of a series of minimum levels that tend towards the bottom. The uptrend, on the contrary, is a collection of maximum levels that rise over time.

3. Use moving averages

A moving average is a simple technical analysis tool, which can however provide very valuable information to an experienced trader. It is able to determine the direction of the trend (in case it is not clear from the graph). A moving average can also allow you to determine the optimal entry and exit points.

4. Follow the trend

According to Murphy, the trend is your best friend. Do not go against it, but follow it. However, you must decide the time frame to trade on before starting any operation. Make sure you do not open a position in the short term based on the long-term trend.

Use a moving average to determine and follow the trend

5. Find support and resistance

Support and resistance levels are key concepts of technical analysis. For some time, support represents the lower boundary of price action. Resistance, in turn, is the upper threshold, which the price should not exceed. When the price of the asset exceeds the resistance, the area should represent a new level of support.

These suggestions should not be followed as inviolable laws. Rather, as a collection of useful tips that will allow you to better understand the markets and that, if applied correctly, will improve your trading skills.

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This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.


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Source: IQOption blog 2018-10-12 09:06:08


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