CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is technical analysis?

Start investing today or test a free demo

Open real account Try demo Download mobile app Download mobile app

The three golden rules of technical analysis are:

  • The market discounts everything
  • Prices move in trends
  • History repeats itself

The most popular forms of analysing markets may be divided into two types:

While fundamental analysis focuses on the analysis of macroeconomic indicators, technical analysis focuses primarily on the analysis of the charts. In recent years technical analysis has gained in popularity not only because of its simplicity, but also because of its universal approach; meaning that it can be applied to all market segments and to different time intervals. Additionally, technical analysis is a method of market analysis that does not require an in depth knowledge of finance. In order to understand what technical analysis is based on, it’s important to understand the three principles of technical analysis:

The market discounts everything

Technical analysts do not focus on macroeconomic and political events, as they believe that any events occurring around the world will be factored in the price of the instruments themselves. Of course an event - such as a natural disaster or geopolitical tensions -  may affect a certain market, but a technical analyst is not interested in the reason. Rather, technical analysts focus on the chart itself and the shapes, patterns and formations occurring on the chart.

Prices move in trends

Technical analysts believe that there is a bigger probability that a certain market movement may continue rather than reverse its direction. In other words, technical analysts believe that prices follow trends. What this means is that if trading is highly based on probability, then in order to increase the probability of the success of a trade, traders should try to trade in the direction of the trend.

History repeats itself

One of the most popular methods of technical analysis is based on the notion that history repeats itself. What this means is that charts tend to form shapes that have occurred historically, and the analysis of past patterns helps technical analysts in predicting future market movements. This principle  focuses on the technical analyst’s belief that trading is highly connected with probability, and the analysis of historical shapes provides the analyst with an edge before opening a trade.

Start investing today or test a free demo

Open real account Try demo Download mobile app Download mobile app

This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.