5 Important Laws of Technical Analysis

4 min read

John Murphy is a writer and technical analysis icon full of talent. This article is a collection of his recommendations to the new traders.

1. Map the trend

The trend is not always easy to locate. Sometimes you have to find it using several technical analysis tools. What may seem like a short-term flat movement can become a trend in the long run. Even if you operate with shorter time spans, it may be beneficial to understand the general situation and act accordingly. This method can also help you get rid of the noise of the price.

What may appear as a flat market in short time intervals may become a trend in the long term

2. Draw the line

As soon as you determine the direction of the trend, mark the trend with one or two lines. The line should connect the points in the price chart. A bearish trend is a series of lows that fall more and more. An upward trend, on the other hand, is a collection of maximums that become higher with time.

3. Use moving averages

A moving average is a simple technical analysis tool that can provide a lot of information to an experienced trader. It is able to determine the direction of the trend (in case it is not clear in the graph). A moving average can also help you determine the optimal entry and exit points.

4. Follow the trend

According to Murphy, the trend is your number one friend. Do not go against him, follow him. However, you have to decide in what time interval you are operating before opening an operation. Make sure you do not open a short-term position based on the long-term trend.

Use of a Moving Average to determine and follow the trend

5. Find the support and resistance

The levels of support and resistance are key concepts of technical analysis. For some time, the support acts as the lower limit of the share price. Resistance, on the other hand, is the upper barrier that the price should not exceed. When the price of the asset is above the resistance, the area can act as a new level of support.

These tips should not be taken as laws that can not and should not be broken. Rather, they are a collection of value tips that will help you better understand the markets and, if applied correctly, improve your trading skills.

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NOTE: This article is not an investment advice. Any reference to historical price movements or levels is merely informative and is based on external analysis and we do not guarantee that such movements or levels will probably occur again in the future. According to the requirements of the European Securities and Markets Authority (ESMA) , trading with binary and digital options is only available for clients categorized as professionals.


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