Business

Understanding the Basics of Technical Analysis – 2021 Guide

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, you can learn more on this on learn.saxo. Choose the higher time frame and execute orders on the major levels only.

Technical analysis and trading style

Source: tradecanyon.com

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

Source: marketbusinessnews.com

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.

Bonus: Myths about Technical Analysis

Source: tradimo.com

It is not a secret that you can hear a lot of stories about technical analysis. The experienced traders will know if they are correct or not. However, they can be quite confusing for beginners. They often do not know how to recognize the myths about technical analysis. That is the reason why we would like to debunk them and help beginners make the proper first steps.

Technical Analysis Are Only Good for Retail Traders

You have probably heard the statement like that many times so far. Of course, we do not want to say something like that is not correct. The retail traders often use that strategy to make the right trading decisions. However, they are not the only ones. Hedge funds as well as investment banks use the same method to make proper trades. Keep in mind that high-frequency trading comes with a high trading volume on stock exchanges. The same rule counts in all parts of the globe. Because of that, your success with them directly depends on technical analysis.

The Success Rate Is Low

The success rate of your trades depends on your skills, knowledge, and analysis you make. It is not correct that technical analysis has a low success rate. We recommend you check the interviews and videos of all experienced traders. Of course, they will give you different pieces of advice, but they will all agree on one thing. The most experienced traders use technical analysis regularly. You can find a list of traders and investors that managed to earn millions of dollars with that method.

The Method Is Easy

Source: thestreet.com

Here comes the most popular myth about technical analysis. You do not have to invest a lot of effort to find a course based on technical analysis. All of them will offer you the same thing. Before everything, they will promise a high return. However, they will also tell you that learning and using technical analysis is not challenging at all. Unfortunately, that is far away from the truth.

You will have to spend months or even entire years learning to use the strategy for Forex trading. All technical analysts have in-depth knowledge as well as good money management skills. These two characteristics are essential for success in the market.

Thanks to Technical Analysis, You Can Predict the Prices

There is a big difference between inexperienced and professional traders. The inexperienced ones will strive to predict the market with the exact price points. At first glance, that seems legit and clever. On the other hand, the best traders will predict the market with the price range. Additionally, they will try to avoid price quoting as points. Keep in mind that technical analysis never predicts exact numbers. The only goal of the analysis is to provide you with the range for predictions.

You Can Use It Only for Intraday Trading

In the end, we need to highlight the most common myth about this type of analysis. It is not correct that people can only use it for intraday trading. The option is also available to people that plan to become the long-term type of traders. The strategy existed even before the computers appeared. You will find many investors that managed to achieve success with long-term investments by using technical analysis. All the types of traders are using them, and there is no reason to hesitate. If you know what you want to achieve, technical analysis will help you.

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

27  +    =  32

Back to top button