#TradingTools101 Here are two essential tools that every trader should know:
1: Using the Relative Strength Index (RSI)
Objective: Helps determine when an asset may be overbought or oversold.
Typical settings: RSI for a period of 14.
How it works:
Buy signal: When the RSI drops below 30 (indicating oversold conditions) and then rises back above it.
Sell signal: When the RSI rises above 70 (indicating overbought conditions) and then falls below it.
Example: If the RSI drops to 25 and then rises to 35, this signal may indicate a buying opportunity.
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2: Using Moving Averages (MA)
Objective: Helps identify trends and potential areas of support or resistance.
Common settings: Short-term moving average (50 days) and long-term moving average (200 days).
How it works:
Buy signal: When the 50-day moving average crosses above the 200-day moving average — known as a golden cross.
Sell signal: When the 50-day moving average crosses below the 200-day moving average — known as a death cross.
Example: A golden cross can indicate the beginning of an uptrend, suggesting a good time to buy.
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Best Practices
Use multiple tools: Don't rely on just one indicator. Combining tools can help confirm signals and reduce false positives.
Adjust settings: Every market is different.
