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How to Trade CFDs Using Basic Technical Analysis

  • Written by News Company

As technology enabled the development of better trading platforms packed with a lot of tools, technical analysis gradually gained a lot more significance when it comes to decision making. Since even though you might use the best CFD trading platform that won’t guarantee success, you’ll need some of the best technical methodologies in order to understand the market’s behavior and anticipate future moves.

The “impulsive vs. corrective” principle

Although most of the online courses claim that the most basic use of technical analysis has to do with price indicators, the reality is that by using them you’ll get a tone of fake trading signals. Most professional use naked chart and price action techniques in order to understand the market order flow.

One of the principles you could use with ease is “impulsive vs. corrective”. The basic concept behind it is that an impulsive move is followed by a corrective move, which is then followed by another impulsive move, and the series goes on until it reverses and the market starts to trend in the opposite direction.





Source: tradingview.com

As you can notice in our 1h EURUSD chart above, legs a, c, and e are impulsive moves, while b, d, and f, are corrections. An impulsive move is characterized by:

  • *  Bigger candles in the direction of the trend;

  • *  Most of the candles have the same color as the trend;

  • *  Impulsive moves cover more ground than corrections.

If we talk about corrective moves:

  • *  Candles are smaller;

  • *  Colors are mixed, no dominant side can be noticed;

  • *  Corrections cover less ground.

In order to be able to spot similar moves, you’ll need an efficient CFD trading platform, knowledge, and a tone of practice. The whole point is that you need to develop a trading system which will enable you to get in the market and profit from the impulsive moves. By doing so, you trade with the dominant order flow and the chances of you generating returns will be much higher.

Managing to spot impulsive and corrective moves is one of the basic skills you need to learn to master. You don’t need to learn highly advanced strategies in order to consistently make money trading. Keep things simple, at least until you reach a level of consistency and only then you can decide to adjust your trading methodology.