CFD Trading Strategies: Technical vs. Fundamental Analysis

CFD is short for Contract for Difference, and it assists you in earning money based on predictive movements of something-price, be it a stock, commodity, or currency. However, to predict which direction in terms of pricing will be the correct call, a trader can use several techniques. Essentially, there are two different major strategies: technical analysis and fundamental analysis. And don’t worry; I’ll break it down into super easy language!

Technical Analysis What is Technical Analysis?

It’s almost like trying to predict what might happen next in a video game. Maybe you’ve played the game so much that you start noticing patterns. You know that if your character hits this particular point in the game, then something special occurs. Technical analysis is a bit like looking at the previous moves of a game to predict what might happen next.

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In CFD trading, technical analysis scans essentially charts of past price movements and patterns to figure out where the price might go next. Traders using this method believe that prices move in trends and that history tends to repeat itself. They look for things like lines, charts, and graphs to spot trends. For example, if the price has been going up for a while, a trader might think, “Hey, it will keep going up!”

Some popular technical tools traders use are:

Support and resistance: These are like invisible walls on a chart where prices tend to stop or reverse.

Moving Averages : They average out the price movements to smooth out the general trend.

Relative Strength Index (RSI), MACD (Moving Average Convergence Divergence), among others are indicators that help one know if a market is overbought or oversold.

What is Fundamental Analysis?

Now, imagine that you want to buy a toy. You might flip through reviews to see if the maker of this toy is raking enough good profits, or people like the toy itself. Same happens in the case of CFD trading as far as fundamental analysis is concerned, which takes in this principle since traders observe things such as economic reports, company earning or even news concerning happenings within the world, all with an aim of trying to understand what might likely happen in prices.

For instance, if the economy of a country is in an excellent condition, then the price of its currency may increase. And if corporate earnings are very strong for any specific company, then the price of its stock may increase. The traders who adopt the fundamental analysis think that awareness of the “bigger picture” may help them to take better decisions.

Technical vs. Fundamental Analysis: Which is Better?

Technical and fundamental analysis have both merits and demerits. Technical analysis is very much suitable for trading in the short term. There, you are looking at quick movements of price. It’s like looking at the game’s patterns to make a quick decision. On the other hand, fundamental analysis works well for longer-term trades because it’s about understanding the bigger picture, like how a company or country is performing in general.

This is of course done by most traders, using either method together for getting a more complete picture. They might use technical analysis to be able to time the trade and fundamental analysis to understand the reason behind the price move.

Whether you read price patterns via technical analysis or understand the big picture with fundamental analysis, each strategy has its magic. Applied appropriately in CFD (Contract for difference) trading, you would be able to make better decisions about where to place your money.