Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
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Is Technical Analysis important for Trading Forex?

One of the critical tips given to investors in the currency markets is to use technical analysis. However, technical analysis is controversial, with some championing it and some saying it does not work. Some people respect and use technical analysis, such as many mainstream analysts, while some investors think technical analysis is dispensable. So, is technical analysis useful in forex trading

To understand whether the technical analysis is practical, we must first understand what technical analysis is. Technical analysis uses mathematical and logical methods to explore the past behavior of the financial markets to judge the most likely future scenarios based on the analysis of price trends. When used in foreign exchange transactions, it means judging future exchange rates based on past exchange rates. The core idea is that the relationship between supply and demand determines the exchange rate. Supply and demand result from fundamental factors, investors' expectations, and various rational or irrational factors. Therefore, the relationship between supply and demand in the foreign exchange market is the only situation that needs to be studied.

 

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Some experts believe that the technical analysis of the foreign exchange markets is based on three assumptions. One is that all the information generated by the market behavior is reflected in the price. Therefore, the price represents every factor affecting a currency pair. The second is that if the exchange rate moves in a specific trend/ direction, it will keep moving in the same direction until the supply and demand factors change. The third idea is where the technical analysis of foreign exchange transactions has always been controversial. After novice investors have a solid understanding of the markets, they start learning to trade and know more about technical analysis. However, despite using technical analysis to trade, they may still lose money or incur significant losses. Hence,  some people think that technical analysis is unreliable.

 

However, that is not the case. Many of the massive losses incurred by investors come from their misunderstanding of technical analysis. They memorize the technical analysis strategies thoroughly and use them as a reference book for trading. However, they miss crucial factors such as risk management, trading psychology and proper money management that lead to them incurring losses. Therefore, their losses reflect their skills and are not proof that technical analysis does not work. 

 

How to choose the right investment strategy

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As CFD trading becomes more and more popular amongst investors, all kinds of strategies emerge because investors need to learn technical analysis to survive in the market. Therefore, they have a variety of strategies that they can use to invest in the markets. With the emergence of so many strategies,  how should investors choose a trading strategy that suits them?

 

  1. Learn simple trading techniques. Basic and straightforward trading techniques are often more effective than complicated strategies. Simple trading techniques will not use complex methods; hence, they will not confuse investors. They are based on the candlestick charts used for direct analysis, which usually reflect the current trend in the financial markets. Investors can analyze those unfathomable trading techniques all day long instead of trading. Therefore, it is better to learn the basic skills first, the simplest trading techniques, and then learn other knowledge later as you keep trading the foreign exchange markets.

 

  1. The more common or popular the trading strategy, the better. The most common techniques are the ones investors need to master since they usually work. The simple reason they work is that the techniques have been proven over time by countless market reactions.

 

  1. Don’t waste time on esoteric trading strategies. Many CFD trading technologies are not as complex as imagined. Many techniques only required minimal research to understand the logic behind them. When encountering challenging to understand technical analysis advice when trading, you can simply ignore that. There is no positive relationship between positive trading results and the difficulty of trading techniques.

 

  1. Try to avoid very complicated techniques. The essence of trading is not that the more complicated the technology, the easier it is to make money. Using complex technical indicators will confuse ordinary investors, which is no help to most investors. Instead, it disrupts investors' thinking, so you should avoid overly complicated trading techniques when choosing a trading strategy to avoid having a chaotic trading routine.

 

Whether or not you can profit in the investment process primarily depends on the investor's trading ability. Everyone has their investment method and trading strategy. Others think that using technology may not be suitable for them. Therefore, investors should be careful when trading. Summarise your own experience slowly, learn slowly, and make choices according to your situation.

 

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Last Updated: 10/03/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

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