Do you consider yourself a serious CFD trader? If so, you have likely put a lot of time and effort into honing your skills. You might be following news events closely to get an idea of what the markets will do next, or perhaps you even go as far as trying to predict future price movements.
But, unless you also know how to leverage your analysis to make the best possible trades – which is where trading tools come into play.
First off, let’s define CFDs: They are ‘contracts for difference’ that allow traders to speculate on price movements without actually buying any underlying product. And if you’re here reading this article, then there’s good that you’re looking for an article that outlines the types of analysis tools that CFD traders use.
Analysis tools for CFD traders
There are four main categories where trading analysis can help you get an edge:
- news events
While no analyst is ever 100% accurate when predicting future price movement, there are plenty of techniques to give them a better idea than if they were ‘winging it.’
We’ll also review several software packages available to you as a trader with these basic categories. That way, you’ll have a good idea of the tasks at hand and how best to accomplish each.
Technical analysis tools
When it comes to technical analysis, traders use price charts and indicators to try and predict future trends. Price charts and graphs can provide visual clues by looking at historical trends and applying them to the current market situation.
Indicators are mathematical formulas that attempt to predict the following price action based on past behaviour. Indicators might also help detect support levels resistance levels or even show momentum swings which could give you a clue where the market is going.
Price Action is one of the most basic forms of technical analysis because it doesn’t require any tools besides your charting software that shows price movement over time. This method uses patterns in historical prices for various assets to predict how they will move in the future.
Fundamental analysis tools
On the other side of the spectrum, there are fundamental analysis tools that use company data and government reports to attempt to predict the market’s future direction. Fundamental analysts use:
- balance sheets
- industry comparisons
- peer group ratios
- price-to-earnings ratios
- economic indicators
There are many more tools used to compare a company’s current financial situation with its history – as well as potential future performance. And while short term traders don’t typically use this form of analysis, it can be beneficial when trading CFDs across relatively stable markets over more extended periods (such as commodities or blue-chip stocks).
Algorithmic trading tools
As far as algorithmic trading goes, traders take advantage of different tools that can give them an advantage when placing trades. For example, traders who are always available to the market (also known as high-frequency trading) might use algorithmic tools to place thousands of orders within a few seconds, allowing them to exploit price movements by executing these rapid-fire orders before anybody else.
News event tools
And lastly, we have news event analysis tools that help you predict how stock prices will react during certain events (such as earnings reports or central bank announcements). This type of analysis is typically done in financial publications just before the event for subscribers who pay for access. But if you’re interested in learning more about this topic, check out our article “Data Science and Financial News”.
Now that we’ve gone over the different types of analysis available to CFD traders, let’s take a look at some specific software packages available in each category. We’ll start with price action and move on from there.
TradingView is a web-based charting application that allows you to set up price alerts and integrate with external platforms. It has a wide variety of technical analysis tools and a large community forum where traders can discuss ideas.
And although this platform does not support algorithmic or news event updates, it’s still a favourite among many CFD traders interested in expressing their opinions about the market.