Using Technical and Fundamental Analysis in Financial Trading

Oct 12, 2011, 11:30 ET from City Index

LONDON, October 12, 2011 /PRNewswire/ --

Technical analysis and fundamental analysis are both popular ways for traders to use the information available to them in order to forecast whether a market price in question is about to rise or fall. Spread betting provider City Index (http://www.cityindex.co.uk/) explains the differences between the two types of market analysis:

Fundamental Analysis

A spread bettor who trades using fundamental analysis will generally base a spread bet on news events to which they believe the market in question will react. This approach is not restricted to financial results and economic news, and can include everything from weather forecasts to political developments. For instance, if Britain was to set for a heat wave, a fundamental spread bettor might expect an ice cream company's price to rise.

This method of spread betting requires up-to-the-minute knowledge of relevant news information, not to mention a firm understanding of the knock-on effects of various industry scenarios. Even then, fundamental spread betting is not flawless, as there are so many factors that affect the markets that cannot be taken into account with the analysis, so risk management is vital.

Technical Analysis

Technical analysis in financial spread betting is based on spotting trends in past data, such as previous price patterns and trading volume. Because it is based on statistics it lends itself to charting and works for spread betting timeframes of all lengths, making it popular with the increasing number of day traders who spread bet on minute-to-minute market movements.

As a rule technical analysis generally excludes financial reports, economy news or other fundamental information, as from a technical analyst's perspective these factors are all already reflected in the price.

In sharp contrast to fundamental analysis, which can be time-consuming, technical analysis can whittle down one's options within minutes. It can also inform stop loss and limit order decisions. The major disadvantage though is obvious; technical analysis is based on what HAS happened, not what is GOING to happen or even what IS happening.

Combination

There is also a third option regarding technical and fundamental analysis when it comes to interpreting the spread betting markets. Fundamental and technical analysis can actually be used together, combining current events with historical form, although it is common for a spread bettor to favour one over the other.

Traders can learn more about the markets with daily news and insights from the trading floor at City Index. To find out more, visit:

http://www.cityindex.co.uk/market-analysis/

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, spread betting.

We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer service and support. Visit http://www.cityindex.co.uk/ for more information.

SOURCE City Index