Technical analysis is a popular school of thought in short-term trading, using past price data and indicators to predict future price trends. Common indicators include:
• Moving Average (MA/EMA): Helps to identify price trends. Exponential Moving Average (EMA) reacts faster to recent price movements. The crossover between short-term and long-term EMA lines can signal a change in trend.
• Moving Average Convergence Divergence (MACD): Measures momentum and the rate of price volatility, while attempting to identify reversal points. Buy/sell signals are generated when the MACD line crosses the signal line or the zero line.
• Relative Strength Index (RSI): Measures the strength of price movements and identifies overbought or oversold regions.
• Bollinger Bands: Consists of three lines (moving average, upper and lower lines) to help identify trends, support and resistance levels, as well as price volatility.
• Trading Volume: An important factor that indicates the strength of price movements. A spike in volume accompanying a price change can confirm trends.
• Trendline, Support and Resistance: Straight lines drawn connecting the peaks or troughs of prices to identify trends and important price levels where buying/selling activity tends to increase.
Advantages and disadvantages of short-term trading:
• Advantages: The potential to earn quick profits from small price movements in a short time.
• Disadvantages: Very high risk, requiring investors to have extensive market knowledge, skilled technical analysis capabilities, and excellent emotional control. Investors are easily influenced by crowd psychology and can lose capital quickly, especially when using financial leverage. Therefore, short-term trading is not suitable for inexperienced new investors.
Note: Choosing an effective investment strategy is not a one-size-fits-all formula but deeply depends on the personal profile of each investor, including risk appetite, available capital, and investment horizon. Short-term trading, while appealing with quick profits, requires high expertise, the ability to withstand significant risks, and emotional discipline. In contrast, Hodling requires patience and strong conviction to withstand market volatility. Failing to thoroughly self-assess and blindly chasing trends can lead to poor investment decisions.