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

Onyx Markets Uncategorised Fundamental vs. Technical Analysis: A Deep Dive

Fundamental vs. Technical Analysis: A Deep Dive

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Fundamental Analysis
Fundamental analysis evaluates the intrinsic value of an asset by examining external factors such as economic reports, corporate earnings, and global events. For instance, in CFD or SB trading on forex markets, a trader might analyse central bank interest rate decisions or inflation data to predict currency strength.

In equity CFDs, traders may review earnings reports or news about a company’s sector. For example, a positive quarterly earnings report from a tech firm could signal a long (buy) opportunity, while geopolitical tensions affecting energy markets might guide traders to short (sell) oil-related assets.

Technical Analysis
Technical analysis focuses on historical price patterns and indicators to forecast future movements. Popular tools include candlestick patterns, moving averages, and oscillators like RSI. For CFD or SB traders, this method allows precision in timing trades:

  • A descending triangle in a stock CFD chart could signal a continuation of a bearish trend, suggesting a short position.
  • The RSI dropping below 30 in a forex pair like EUR/USD might indicate oversold conditions, implying a potential reversal for a long position.

Technical traders often rely on backtesting their strategies using historical data to refine their decision-making.

Key Differences
While fundamental analysis identifies what to trade, technical analysis focuses on when to trade. For instance, a trader using fundamental analysis might choose to trade crude oil CFDs due to a supply shock. However, by applying technical analysis, they could pinpoint an optimal entry point when the price consolidates around a key support level.

Combined Approach
The most effective strategies often blend both methods. For example:

  • A trader anticipating a central bank rate hike (fundamental analysis) might wait for a breakout above a resistance level (technical analysis) to enter a position on the relevant currency pair.
  • In SB trading, monitoring quarterly results from a major company (fundamental) alongside its stock’s bullish candlestick patterns (technical) can provide a clearer picture.

Conclusion
Fundamental analysis provides a macro view of market drivers, while technical analysis refines trade execution. Together, they equip traders with a comprehensive toolkit for navigating CFD and SB markets. Whether you’re evaluating earnings trends or timing a breakout, understanding both approaches enhances your trading potential.