Forex technical analysis reveals a lot of information about the ongoing as well as the upcoming market flow. The indicators identify the chart types and patterns to help us figure out what is going on in the currency exchange industry. In the CFD market, a trader needs to buy a currency against another and sell it after retaining for a set period of time. Some of the famous currency pairs in this trading platform are – EUR//USD, USD/CAD, AUD/NZD, USD/JPY, and so on.
There are two kinds of analysis in the CFD world – one is fundamental analysis, while the other is technical analysis. A fundamental FX expert deals with news events, and factors affecting the ups and downs of currency’s value. By contrast, technical analysts deal with the indicators. These indicators analyze the resistance and support level and the possible trend of the industry.
Understand the technical analysis
To understand this correctly, you have to realize the market types from the beginning. There are two major types of movement in the platform.
- Trends (Upward or Downward)
One may see an upward trend when the currency’s value rises. After attaining the peak value, the price of the currency starts falling, and a downward trend starts. The upward flow of the price is also known as a bullish movement or uptrend, and the downward flow of the price is known as a bearish movement or downtrend. A strong trend indicates that the CFD market is highly volatile, and one should enter in the trades after identifying a potential entry point. If possible, learn about the price action signal, as it will allow you to execute long trades with extreme precision.
- Ranging (no trend)
In this type of market, you will not notice any sharp trend or movement in the currency’s value. This is why this is called a ranging or consolidated market. Here, you will see that the price is moving at a static rate. While trading the ranging market, reduce the risk exposure in each trade.
What are the advantages and disadvantages of technical analysis?
Forex technical analysis is highly efficient in determining the entry and exit points, as well as the approaching chart condition in the upcoming days. Traders who prefer to trade using a lower timeframe can use this investigation to find out a potential trade.
It doesn’t mean that you will need an enormous amount of tools. By utilizing a few extensions, anybody can successfully do this. The investigation is ideal for short-term traders in the Mena zone because they have to make a quick decision and execute the trade within the same day. Scalping and day trading are the two most common short-term business strategies in the CFD industry.
There are some disadvantages as well. Some indicators act slower than the actual market. Therefore, you may have to be careful when using those tools. We always recommend that newbies practice using all the tools in their demo account to get a clear idea about them. Also, in certain market situations, an investor may have to combine the fundamental and technical analysis to predict the outcome of the trade. This seems to be a problem for many novice investors.
How should you use this investigation?
Since the technical investigation is extremely powerful, one should use it carefully to make profits in the Forex industry. There are varieties of technical indicators, and you must be familiar with all of them. Each of them has some unique advantages. Some of the leading tools are – Bollinger bands, simple and exponential moving average, momentum, moving average convergence divergence, and so on.
You have to use two different timeframes such as – 50-days, 100-days, or 100-days or 200-days, to draw two average lines. One average line will be for 50-days, and another one will be 100-days. You can then observe them to discover their crossovers, entry and exit points.