Technical and Market Analysis for CFD Traders

February 11, 2020

Arguably one of the trickiest elements to building and maintaining a profitable CFD trading account is generating fresh trading signals and opportunities in the markets. While finding profitable trades might not sound too difficult, it is in itself the single most time consuming element of financial trading, and one of the most crucial in ensuring traders are able to generate a return on their capital. In order to find viable opportunities, traders are required to research and read extensively to spot the metaphorical needle in the market haystack. One key element of researching opportunities effectively is technical and market analysis, which when accompanied by research and an understanding of market affairs gives traders the best insights into where profits can be found.

What Is Technical Analysis?

Technical analysis is the process of analysing market data, namely price movements and trends, in order to establish which positions present an opportunity for profit. Technical analysis is often conducted through charting tools and applications, which make it easier as a visual exercise to identify the data required to make trading decisions.

Traders are often put off by the apparent complexity of technical analysis as a process, and the presentation of graphs, charts and a lot of different coloured numbers can be understandably daunting. Fortunately a number of trading strategies rely heavily (or exclusively) on technical analysis, meaning those traders that expect to succeed will be confronted with the unavoidable need to consult technical data as part of implementing new trading techniques and strategies. So what is it about technical analysis that you should concern yourself with as a CFD trader, and what’s the importance and value in analysing market trading data?

What You’re Looking For

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In a word, technical analysis is all about trends. Current trends, past trends, future trends – knowing which way market momentum is likely to shift is ultimately what analysing technical data is all about, and through charting applications which present this raw information in an effective, visual way, traders can gain invaluable insights into the mood of the markets in relation to the positions they intend or expect to trade. When analysing technical data, look for emerging trends, which may differ over different time frames, and examine the pricing levels in relation to identifiable positive and negative market forces. While this won’t usually be sign-posted, knowing what you’re looking for and taking the time to understand what it means is half the battle when it comes to generating new trading signals.

Why It’s Important?

Markets don’t quite operate in a vacuum, but they can and do have a mind of their own. News that one man might interpret as positive may be seen as unsettling to another, and there are simply so many different variables involved in markets making decisions about asset pricing that to trade without recourse to technical analysis is much more like guess-work. Technical analysis is an important means of validating external trading prompts, and identifying trends and trading opportunities that may not otherwise be obvious to the trader. Only by studying and interpreting this kind of data can traders hope to make the levels of decision-making required to be successful.

Technical analysis should be considered a friend rather than a foe, and getting to grips with how it works and what it can show is an important step in learning how to become successful with CFDs. While approaching technical and market analysis might seem daunting to the inexperienced, it performs an essential role in helping find market opportunities for traders to explore, and underpins most successful trading strategies in some way or another. As such, it’s recommended traders get up to speed with technical and chart analysis as soon as possible in order to leverage the most from market opportunities.

Article by Jim Moor