Technical Analysis

The Importance of Technical Analysis in Forex and CFDs

Investors have thousands of opportunities to trade assets online, and to be a successful investor traders must identify trends and be able to predict the future value of financial assets. The importance of Forex and CFD technical analysis is essential to help coordinate these decisions and determine the optimal trade that meets the overall goal.
In fact, technical analysis is very important in Forex trading to be able to predict market movements, given the high volatility.

What is Technical Analysis?

Technical analysis studies market behavior, primarily through the use of graphical tools, market indicators and reports to predict future trends in asset prices. This analysis is based on three basic premises; Here are the assumptions:

1. The price reflects the overall stability of the asset; there are many elements that influence the market and this is reflected in the stock price. Mainly supply and demand cause the rise or fall of this price. As a technical analyst, you should not be concerned with the factors that cause changes, but limit your analysis to the consequences
2. Price moves in a trend; this is easy enough; prices always move in a trend, up and down, depending on the situation that occurs at any moment in the market. The purpose of technical analysis is to determine the trend, and be ready to start your trade in that direction.
3. History always repeats itself; certain trends in the market tend to repeat themselves again and again. It is very useful to compare and check the past behavior of an asset before deciding what to do with your investment, depending on the asset’s history.

With this style of analysis, a trader will use market trends to predict future asset price movements. The purpose of this technique is to estimate the current value of the asset, but to determine patterns in price fluctuations, which help predict future activity. Understanding this model allows traders to identify potential changes in the asset’s value, giving them a good indication of an upward or downward trend in the asset’s price. It is also important to note that technical analysis is performed the same no matter what underlying asset you are looking at.

Using Technical Indicators

Technical indicators are defined by different mathematical variables and are differentiated into four families based on the desired information. They allow you to see real-time changes in the price of certain assets and evaluate assets related to market psychology.

Trend indicator : This type of indicator allows traders to see at-a-glance the trend of real-time assets.
Momentum indicator : This indicator is a powerful tool to help appreciate the strength of the current trend.
Support and resistance : This indicator is calculated directly from the highest level and the lower active level and generally allows rules to determine the target price.
Volatility Indicator : This tells the trader if the course is in a range and if the asset is trading in a narrow price zone or if the asset is completely in a rush in a certain trend.

Online traders quickly learn to make more accurate predictions and minimize risk, the importance of technical analysis for CFDs and Forex is an important component of their cache of tools.