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Trading on exchanges (Upper-intermediate)
This is a key part of technical analysis used by traders to identify price points on a chart that act as barriers, stopping the price of an asset from going too high/low.
Support & resistance lines
Support occurs when a downtrend is expected to pause and reverse due to a rise in demand. Resistance ensues when investors decide to sell because of an increase in prices, driving prices back down.
Once an area of support or resistance is identified, price levels can serve as potential entry or exit points. The reason is that the price of the asset will do one of two things after reaching either of these points:
- bounce back away from the support/resistance level or
- pass the point and continue rising/dropping until it hits the next support/resistance point.
If the price goes past this level, you can close the position and take a small loss. When you get it right, the profits can be substantial. It may sound quite simple, but support and resistance levels are much more difficult to master than it appears.
Resistance and support lines
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A support line is a price level where a downtrend can be expected to stop and reverse because of the concentration of investor interest.
A resistance line is the opposite, a price level where an uptrend slows down and reverses because of an increase in selling interest after prices have risen.
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Support and resistance lines
Bear/bull market conditions & tech analysis tools
A bull market refers to a strong upward trend that presents significant increases in price over a relatively short period. Depending on the market we are looking at, this period can vary.
For the cryptosphere, this timeframe is often shorter than traditional markets due to its volatility. A 45% increase over a couple of days, or sometimes even in the space of a few hours, is quite common in the crypto world.
Although a “bull market” can mean any kind of upward trend in market activity, it occurs when an asset’s price rises by around 20% above the previous low point.
Bull markets usually appear when investors are optimistic about an asset and believe its price will rise higher and higher. So, they start buying it.
Investor confidence and favorable market conditions are two factors that can cause such a trend. However, it is essential to always carry out your independent research and technical analysis to understand market trends better. Tools such as moving averages and the relative strength index, both of which are available on Changelly PRO, are extremely useful to all traders.
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A moving average (MA) helps to smooth out price data over a specific period, which creates a constantly updated average price. It is a lagging indicator since it is based on past prices.
The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes. It evaluates overbought or oversold conditions in an asset’s price. It can act as both a leading and lagging indicator. In reality, it is a lagging indicator because the price needs to move before the indicator moves in that direction. However, when the RSI reaches extreme levels, it can signal that the price is overextended, meaning the trend might run out of steam and reverse in the other direction soon. Therefore, it becomes a leading indicator.
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A moving average tracks the price of a security over a period of time and plots it on a line. In general, it reduces the noise from price fluctuations and gives investors a rough idea of where the trend is going, helping them to determine buy and sell signals more accurately. Depending on the period, the MA can look different. Shorter timeframes are usually choppier, while longer ones are smoother. You can calculate the MA by following these simple steps:
- First, select a timeframe (e.g., 20 days).
- Next, take each day’s price within this period and add them all together.
- Then, divide that number by the chosen timeframe, which would be 20 for a 20-day MA.
- The result will give you a moving average.
Moving average indicator
The RSI shows us the speed and the size of price movement over time and gives us some insights into the market. If the price movement is over 70, the asset is overbought. If the movement is just below 70, the market is bearish. The asset is considered oversold if the price movement goes below 30. If it goes back over 30, then it’s described as a bullish trend. And if it is at 50, the price is neutral. Luckily, when calculating the RSI and the MA, Changelly PRO automatically calculates everything for you, making things quicker and easier for users.
RSI indicator
Bear markets depict negative trends in the market.
Normally, a bear market refers to a strong downtrend, usually illustrated by significant price drops in a short period. Given the volatility of cryptocurrencies, these drops in price can be much more substantial than in traditional markets. Sometimes they seem more like plunges than simple drops, with prices occasionally falling lower than 80% in short periods.
In more traditional markets, like stocks and bonds, we usually describe a bear market as a situation when the price falls 20% within 60 days. Bear markets can be more cyclical and last longer than bull markets. This is the time when investors should be more risk-averse rather than risk-seeking.
In the cryptosphere, it can be harder to predict when a bear market will appear since the market is still relatively young. We don’t have that much data to examine compared with the amount of data available on the stock market.
Events like bursting bubbles, lower trading volumes, downtrends in pricing, and government intervention, like China’s recent governmental restrictions on mining and other crypto software, can show that a bear market may soon emerge.
Technical analysis tools such as the moving average convergence divergence and the exponential moving average can detect a bear market, just like the other tools mentioned earlier: MA and RSI.
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The moving average convergence divergence (MACD) shows the relationship between two moving averages of an asset’s price. We calculate it by subtracting the 26-period EMA from the 12-period EMA. It can help investors determine whether a bullish or a bearish movement in the price is strengthening or weakening. It can also signal if the market has been overbought or oversold, somewhat similar to the RSI. These two indicators — the MACD and the RSI — are often used together to give investors a more thorough technical picture of the market.
An exponential moving average (EMA) is a type of MA that focuses on the most recent data points. It is also sometimes referred to as an exponentially weighted moving average. It produces buy/sell signals based on crossovers and divergences from the historical average, with traders often using different EMA lengths, such as 10 days, 20 days, 50 days, or even 200 days. Traders use the EMA overlay on their trading charts to determine a trade’s entry and exit points based on where the price action sits on the EMA. If it’s high, the trader may consider selling, and if it’s low, they might consider buying.
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The MACD will plot two lines on the chart, the MACD line and the signal line.
The MACD line is the distance or difference between the two moving averages (12- and 26-period moving averages). The signal line is the moving average of the MACD line. The MACD is the average that moves faster, and the signal line is the slower one.
A histogram is also often displayed with the MACD, charting the distance between the MACD line and the signal line. If the MACD goes above the signal line, the histogram will be above the baseline. It will go below the baseline if the MACD goes below the signal line. The MACD’s histogram helps users determine when high bullish and bearish trends surface.
MACD
The difference between EMAs and simple moving averages is that EMAs give more weight to recent price moves than old ones.
SMAs give equal weight to all prices. However, SMAs may not always react quickly to the most recent events in the market. Traders using SMAs to predict trends can be slower at spotting them than if they used EMAs.
Nevertheless, EMAs have a time delay too, just not as long as SMAs. Changelly PRO calculates both the EMA and the MACD for you, saving you from doing complex equations.
EMA
Margin trading – long/short positions
Two common trading terms you’ve probably heard before are long and short positions. Both are featured in pretty much every style of trading, from crypto to stocks and shares.
Long trading positions are essentially just basic trading: buying a stock and waiting for it to increase in value. It is probably the most common investment strategy: traders use this technique to make money from the stock price increase, hoping that they will sell the asset at a higher price. Long position traders chase bullish markets, watching their investment rise to new heights. The risk here is relatively low as it is limited to your investment amount, but profits are potentially unlimited.
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A long position is a conventional investment strategy. It is basically buying an asset at a low price, waiting for the price to rise in a bullish market, and selling it for a profit at a higher price than you originally paid.
A short position requires selling an asset borrowed from a third party hoping the price will drop so that you can buy it back at a price lower than you sold it for, pocketing the profit before you repay a loan.
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Short positions are a little more complex. They are part of margin trading, and a margin account is needed before you can participate in ‘shorting’ assets.
Basically, you are borrowing an asset whose price you expect to go down.
For example, you buy 5 BTC from a third party, a broker, with the obligation that you have to return them. Let’s say you bought them for $5,000 per coin. You immediately try to sell them at the same price you bought them for, hoping the price will soon go down. So, you sell them, and then you wait for the price to go lower.
When the price hits $30,000, you buy 5 coins back and then return them to the broker, and you keep the difference of $20,000 that you made in your sale. This is a pretty risky strategy, especially for new traders. It requires quite a lot of research and confidence in your technical analysis that the price will go down.
Stop-loss orders can be used here to limit losses, as one sells the asset once the price reaches an agreed lower level. Short traders chase bear markets, looking to profit from a drop in the asset’s price.
However, margin trading isn’t all that bad and risky. It can enable you to trade on a bigger scale, therefore allowing you to receive larger profits on successful trades. This style of investment is usually used by more experienced short-term investors who have done their own in-depth independent research. Margin trading can be helpful when investors expect to earn a higher rate of return on the investment than they pay in interest on the borrowed asset. Changelly PRO now offers its users margin trading, with 2FA required, ensuring a heightened security level.
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Margin trading is basically the practice of borrowing funds from the exchange, allowing you to make a larger investment and receive a larger amount of profits.
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So, in conclusion, we’ve learned that support and resistance lines can help us identify price points and where bullish uptrends and bearish downtrends may slow down/reverse.
We also covered a number of indicators and tools, such as the relative strength index and the exponential moving average, which can help us predict market trends, reversals, and forecast price points.
The moving average convergence divergence can assist us in detecting if the overall market trend is strengthening or weakening. It’s important to remember that the more tools we use and employ, the greater understanding and the more detailed overall picture we will get of the market.
This could be vital whether we are trading long positions, short positions, or even trading margins on Changelly PRO. But don’t think we finish here with our trading tips. Keep reading if you really want to become a top trading pro, and we will reveal some more advanced investment strategies and tips.
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