As a spread bettor, CFD and forex trader, it is important to have a trading strategy that will enable you to identify profitable trades, maximise profits and cut your losses when a trade goes against you.
Technical Analysis and Fundamental Analysis are two common types of trading techniques used by spread bettors, CFD and forex traders alike; to analyse and trade the financial markets.
Technical Analysts look at historical price data to forecast where price trends may turn in the future as they attempt to speculate on these forecasts. Fundamental Analysts, on the other hand, look for a more rigid assessment of the core underlying factors that may affect demand for an asset.
Most traders tend to categorise themselves into one of the three areas below when determining their trading strategies:
Looks purely at price action and ignores the noise created from news and economic data.
Takes a more rigorous assessment of the core fundamentals of a currency that may drive demand.
Considers both technical and fundamental aspects when assessing trading opportunities for a much more balanced view.
Technical Analysis has risen strongly in popularity over the last five years and is today actively used by traders to spot potential future price trends using a multitude of charting tools and historical data.
One of the key beliefs of technical analysts is that history is likely to repeat itself. For example, for those choosing to trade forex - say that the price of the EUR/USD historically saw traders selling when prices neared the $1.5000 level (commonly referred to as a resistance level).
Technicians, or technical analysts, would use this historical trend to forecast that prices could face selling pressure when they near the $1.5000 mark, and therefore decide to sell EUR/USD if prices near $1.5000.
When looking at historical price trends through charts, most technical analysts would typically consider three key assumptions:
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