Test the waters
When you have an understanding of how investing works and want to try your hand at trading, it's recommended to test your strategies first with paper trading. This involves using a demo or virtual account to simulate your trades without risking any real funds.
To help you make an informed prediction on how an asset's price will move, you will likely use technical analysis to identify trends and patterns. As charts are based on past performance, there is no guarantee behaviour will repeat, but if you're familiar with the trap of the economic cycle you can use it to your advantage. Depending on your strategy you may want to use the following indicators:
EMA
The Exponential Moving Average shows the trend of price moves, weighted more heavily to the most recent data. If the price goes too high above this line it's likely to come down at some point, and if it goes too far below the line it is likely to come back up. The video below explains how to use this:
MACD
Moving Average Convergence/Divergence follows the trend of the 12 period and 26 period moving average. When they cross it means there is a change in the trend, encouraging further buys when crossing upwards or sells when crossing downwards. Here's an overview below:
RSI
The Relative Strength Index measures momentum and oscillates between 0 to 100. It is generally thought to be oversold under 30, which is likely to encourage buys to bring the price back up. It is then thought to be overbought once beyond 70 and likely to trigger sells bringing the price back down. Watch the video below to see how best to use this especially when it diverges from the price activity:
Stochastic RSI
The Stochastic Relative Strength Index measures momentum in relation to the closing price of each candle, this increased sensitivity gives better insight into short-term movement and changes in trends. Watch the video below to see how to use them together:
Using these indicators together is beneficial, as it can add more confidence to a trade if several indicators are telling you the same thing. If they are different there may be some unexpected volatility, so it's best to wait until the right conditions appear instead of chasing something that may not come.
I hope you've found this information useful. Please send in any questions or feedback using the email button at the bottom of the page.
