The option trading industry has gained popularity because of a high potential to make money. Many people are earning a fair amount of profit by placing the order wisely in this market, and because of this, others have become interested in joining the platform to become independent of work pressures and to earn money. However, soon after entering the platform, beginners find that the market is like a labyrinth, and there are a lot of terminologies that they don’t understand well. In addition to this, many of these guys choose the wrong broker and consequently lose their money.
Since the market is new to those people, we are here to help them by delivering the most basic knowledge about a few terms used in trading. This will surely help them to make progress.
Things that beginners should know before start trading
There are lots of terms used in options market, and sometimes the newbies become so confused that they lose their interest in trading. Some of these terms include – sideways or consolidated markets, resistance and support levels, different indicators, trade styles and methods, strategies, and so on. Here, we will try to cover most of those terms to make them easier to understand. This will also help you to better understand types of trend.
Soon after launching the platform, the chart is the first thing that every trader will see. The chart shows the ups and downs of the currency’s price, which determines whether a trader should buy or sell it. There are three most common types of trends –
Uptrend: When a trend moves in an upward direction, it will be called an uptrend. This is also called a bullish or an upward movement. The trend indicates that the price of a currency is increasing. To analyze the trend perfectly, you should always use advanced tools like elite UK traders. Visit the company website of Saxo and see the features of their advanced trading platform. This will definitely help you to do better technical analysis.
Downtrend: When a trend goes in a downward direction, it will be called a downtrend, and you may also know it as a downward or bearish movement. The trend indicates that the value of a currency is decreasing.
No trend or sideways market: In this type of trend, you will see no significant fluctuations in a trend. It will either remain the same or will fluctuate very little. This type of market is also called a sideways or consolidated markets.
- Resistance and support level
These two terms are extremely important, especially when you will deal with short-term trade styles and technical indicators.
Resistance level: This is the highest value of an uptrend, and after attaining the peak value, the trend should move downward. This level is an ideal spot to sell a currency.
Support level: This is the lowest value of a downtrend, and after reaching the base value, the trend starts moving upward. This is regarded as a perfect spot to buy currencies as they can be bought at the lowest price.
- Trade styles
Trade styles indicate the strategies and the timeframe that a trader should follow. There are several trading styles, and four of them are very popular. They are –
Position trading: This is a long-term trading style, beginners retain the purchased currency for a few days, weeks, or sometimes a couple of months. It is considered the safest strategy for newbies.
Swing trading: The duration ranges from a few days to weeks. In this style, the trader needs to wait for a swing to take place, and soon after noticing a swing, they execute the trade.
Day trading: In day trading, an investor must execute deals within the same day. You need to be technical to be a day trader.
Scalping: This is the riskiest strategy for beginners because they need to make a decision within a few minutes, and a wrong decision can ruin the entire trade.
These are the most basic knowledge that every Forex investor should acquire to develop their fundamental knowledge.