It’s not at all uncommon to hear traders go around talking about being primarily a technical analysis trader or a fundamental analysis trader. It almost seems like there are two completely different camps in the market analysis war within the Forex market as traders pick and choose a side in the technical versus fundamental analysis debate.
When people ask me whether I primarily rely on technical or fundamental analysis in my trades, I know that there is always that opportunity for debate, but, as a Forex trader with more than half of a decade of experience, I know better than to pick a side because both types of analysis serve a specific purpose and oftentimes tell us much of the same thing in their own unique ways.
Now, before you write this discussion off, let me explain. Based on my experiences, technical analysis is always king in Forex trading, but you’d be negligent to ignore the value of fundamental analysis. The important key here is that the two should be used together.
When I say that technical analysis is king, I mean that technical analysis findings almost always set the mood for the market. The technical analysis truths that you find within your candlestick charts give you the action plan for the next movements that the market has in the mix for that particular currency pair.
Charting software has changed how the average person enters the Forex market and ultimately how they fair in their trades. Through the candles of technical analysis charts, we could better determine potential market directions and movements before they happen. Based on this analysis, we could then decide optimal trading entries and exit points which aim to position us on the winning side of the market. On that same note, we also have big national and even multinational announcements that will cause volume spikes in the market. While these announcements do not change what the technical analysis provides, these spikes typically ignite the market to fulfill technical analysis conclusions more quickly.
The two types of analysis work hand-in-hand in timing successful trades. From my experience, there are 13 major U.S. fundamental announcements each month that typically result in increased trading volume. These announcements could either empower you as a trader to lose or win your trades because of this increased movement spike and that’s where your technical analysis comes back into play in a big way. Being able to harness the power of both fundamental and technical analysis allows the trader to become more powerful and more accurate in their trading analysis and execution because you can better predict the market’s overall directional movement you expect to see fulfilled in the long run. Because you know how to utilize both techniques together, you could find trading opportunities within the fundamental announcement movement spikes that continue to place you in the non-emotional, strategic positions as you focus on the bigger prize. This could potentially help you cash in on bigger pip wins than the more short-sighted, solely fundamental analysis approach could produce.
When a fundamental announcement comes out, we look for convergence or, in other words, two or more market reasons (such as similar sentiments from fundamental and technical analysis) leading us to believe that the market might u-turn. If the convergence matches up, the u-turn will take place and wise traders take this as a sign to alter their trades or to timeout their trades appropriately.
Without fundamental announcements, the market is almost a waiting game as we wait long periods of time for the big swings of movement that we identify on our technical analysis charts to complete. When fundamental announcements come out, the market moves much more quickly. As traders, fast movements could mean fast cash, and, let’s face it; we live in a fast-paced world. We thrive off of these quick movements and consequently quick results.
At the end of the day, all fundamental announcements are good for Forex traders because of the extreme volume that comes from the release of both good and bad news. This volume means trading opportunity. Again, this fast movement means fast losses as well as fast wins so if your technical analysis is off, you and your investments are in danger.
The key to successful trading in this sense is identifying what the technical analysis charts are saying to you as a trader, cross referencing high volume times marked by fundamental announcements, then identifying optimal trading times and direction based on the release of key announcements which will theoretically propel the market to more quickly fulfill the predictions identified by the technical analysis.