What is Technical Analysis?


Technical Analysis Chart

Technical Analysis – Is Not Technical

Spread trading using technical analysis is perhaps the most popular way to bet on future price movements. Technical analysis is used in some degree by most professional traders and investment institutions which make up a significantly powerful group of market movers. It is due to the fact that these participants are highly influential in market movements, dictating the supply and demand of currencies and stock, which makes the form of analysis that they use becomes so important to understand.


Technical Analysis

Technical analysis used in spread betting is based on the historic movement of price as seen on a the price charts supplied free by most brokers. It involves the understanding of particular patterns and recurring scenarios which indicate where price will move in the near future.  Spread traders can use technical analysis successfully to generate profits and develop strategies to trade in line with the majority of other traders. Since trading is about allowing you to trade with the highest probability of success possible, it makes sense to be observing and trading with the majority of the big players in a market. For these reasons, technical analysis, becomes a self-fulfilling prophecy; basing itself less on the natural outcome of a particular pattern but more as a desired outcome by a large number of traders.

Japanese Candlesticks

Japanese Candlesticks

Spread trading with technical analysis involves the careful study of price charts and a reasonable understanding of the patterns which will offer an explanation of price. Although there are hundreds of potential formations and patterns on a price chart, there are several technical set-ups which are the most common and considered the most successful to trade. These patterns can form over long periods of time or very quickly on intraday charts. Since different timeframes will represent different chart patterns, technical traders tend to apply the most significance to technical patterns which occur on the most popular timeframes. These can be considered as the daily, hourly, fifteen and five minute harts. This does not mean that the other timeframes will produce irrelevant patterns but, again, maintaining the highest probability of success requires spread traders to be reading from the same page.

Some of the most basic and reliable technical patterns will be available to learn free on your brokers website or one of he many forums providing educational material to new traders. The patterns which can be seen to occur in the markets most frequently can easily be studied and back tested to test their level of success. These patterns include simple trend lines and support and resistance levels to head and shoulders and double top formations. These patterns present themselves frequently and spread betting on the direction that they dictate is an easy way to profit from them. Many of the patterns also have a natural zone in which a stop-loss can be placed which minimises the negative impact on your account should the pattern fail. Since probability is on your side that the trade will be a success it is important to apply a reasonable reward to risk ratio in order to benefit from having this on your side.

Spread trading using technical analysis is an exciting and popular way to trade. The fact that it is straightforward to learn whilst being observed and applied by many traders in the underlying market adds to its success. By learning the basics of technical analysis, traders can interpret price charts and spot opportunities to place bets before the price begins to move. Even for spread traders who prefer to use other methods of trading it is important to have a general understanding of technical analysis in order to also spot what a large number of traders will be looking out for.

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