Understanding the Basics of Technical Analysis

To be a professional Forex trader, it can be an excellent choice to be a technical analyst. Education on this particular study can develop the trader’s skill to handle the risks of the market. This analysis is so robust that one can quickly and comfortably predict the next direction of the currency. Technical study in the CFD business is regarded as a crucial aspect.

If you are a novice, the situation is going to be a little tough for you. But don’t worry because we are here to make the difficult things easier. To be a good analyst, there are certain things that you must grasp at the beginning. Let us outline a few basic terms related to this industry –

  • Resistance level

The resistance level is a particular point at which the uptrend reaches to the maximum value and the starts moving downward. In short, resistance is the highest value of the uptrend. Resistance is considered an ideal spot to sell the financial instrument.

  • Support level

The support level is the point at which the downward reaches to the lowest value and then starts its journey to the upward. In short, the support level is the lowest value of a downtrend. It is considered an ideal point to buy a financial instrument. Try not to trade at the minor levels in the CFD trading industry. Choose the higher time frame and execute orders on the major levels only.

Technical analysis and trading style

Many people ask a common question, which is related to the investigation and the types of styles it suits best. There are several indicators in this kind of investigation, and when a trader wants to choose an analysis and style, he should do that carefully. Technical analysts are short-term investors, and they choose trading styles like day trading or scalping. Those professionals execute the deal quickly as they retain the purchased currency for a few hours.

In a scalping strategy, the financial instrument is retained for a very short time, which extends from a few seconds or 5 minutes. The timeframe of day trading ranges from a few minutes to a few hours. While dealing with the shorter timeframe, an investor must choose the technical analyzing tools.

Candlestick chart – a breakthrough in CFD trading

A candlestick pattern has brought about an excellent breakthrough in the online trading. This design was invented by the Japanese. One may notice two kinds of candles in a candlestick chart – i) a white or green body, and ii) a black or red body. Each candle is comprised of three different sections – the body, the tail, and the nose. During a bullish direction, the white or green candle starts its journey, and during a bearish flow, the black or red candle starts its journey. The beauty of the candlestick pattern is that it can clarify all the information by revealing all possible movements of the price.

Trends in the CFD market

In the CFD market, there can be three common chart types – an uptrend, a downtrend or a sideways market. Let’s discuss these three.

  • Upward market

In this platform, the price of the currency moves upward, and after reaching the highest value, it ends its upward journey.

  • Downward market

In this type of trend, the currency’s price moves downward, and after attaining to the lowest value, it ends the journey.

  • Sideways

This is also known as the ranging or consolidated market, in which the movement of the price is strict and sometimes flat. You will see no significant flow of the price.

Technical indicators will analyze all these trends and the movements, and it will reveal the possible points to enter a profitable deal.

These are the basic knowledge about the FX technical indicator. An investor who is planning to start his career in the investment world, can acquire the knowledge about those analyzing tools. In this way, he can slowly become a professional. Remember that these indicators will work best in the lower timeframe.