Technical and Fundamental Analysis

CFD traders use a variety of analytical tools to decide when to enter and exit trades. Fundamental analysis involves interpreting the economic, political and financial news that relates to a particular security, such as interest rates and company press releases. Technical analysis involves interpreting past trends of a security’s price and volume to identify potential entry and exit opportunities. Traders will often use fundamental analysis to decide whether to take action, and technical analysis to decide exactly when to take action.

Types of fundamental analysis for CFD trading

For fundamental indicators, stay tuned to your trading calendar and to the news for relevant releases that could affect the price and volume of your chosen CFD trading symbol. These may include:

  • Interest rates
    Interest rate announcements from Central Banks can significantly affect the price and momentum of commodities, bonds and indices, and traders can capitalise on these changes.
  • Economic growth
    Times of economic growth can increase demand for commodities and therefore commodity prices, while demand and prices will generally fall in times of slower growth or economic uncertainty.
  • News announcements
    Geopolitical events, company acquisitions, new industry developments and manufacturing processes can all have an effect on the price of relevant commodities and indices.

Types of technical analysis for CFD trading

Technical indicators are not definitive, but they can help to identify specific points for placing stop losses, take profit and entry orders based on previous price and volume. Popular indicators include:

  • Moving averages
    The moving average indicator is one of the most commonly used as it smooths out prices to show hidden trends. The crossover between two different moving averages can indicate where a trend is likely to change, which can be used to define buy and sell points for traders.
  • RSI
    The Relative Strength Index indicates the strength or momentum of the current market. It can sometimes indicate overbought or oversold levels for a certain symbol and suggest when the market has reached its peak or trough.
  • Stochastic
    The Stochastic indicator looks at the closing prices for each day to help identify an uptrend or downtrend. Traders can use this to identify potential trends and changes in momentum. The idea is that in a strong uptrend, the closing price will sit close to the top of the range.