The right way to combine forex technical and fundamental analysis.
One of the most general questions asked by rookie traders is: which one is better, technical or fundamental analysis? It is surely a good point to learn about technical as well as fundamental analysis when you learn Forex as beginner since the two are the most common method used in forecasting the Forex market. So, which one is the best in the Forex market?
Technical analysis is possible to be performed on various charts. On the other hand, fundamental analysis, as a study of economy indicators which influence currencies, can be a bit more subjective in its usage. However, when it comes to be the best one, the answer can be so relative since each method has its own pros and cons. So, why we don’t combine both?
How to Combine Forex Technical and Fundamental Analysis
When the two actually have some difference to see the Forex market, it is actually not impossible to combine technical and fundamental analysis to predict the movement of Forex market. In fact, there are a lot of professional traders who make use both methods to help them forecasting Forex market. Let’s take a peek of the two methods before we learn how to combine them.
• Technical Analysis
When it comes to technical analysis, this method focuses exclusively on charts as well as past price behaviors. When using this method to forecast the Forex market, traders will frequently integrate indicators as well as tools to make decision. Moreover, traders will likely to attempt to expect future price movements with seeing past price pattern instead of seeing the outside world.
• Fundamental Analysis
While technical analysis focuses more on the charts, fundamental analysis lets traders to focus more on the financial drivers of the economy. When using this method of analysis, traders will frequently follow data releases and also news announcements especially from country’s central banks and financial authorities. In this method, traders also tend to believe on sentiment drives markets in forecasting Forex market.
• Combining Technical and Fundamental Analysis
Instead of comparing technical analysis to fundamental analysis, it must be great to learn how these two methods can help each other for our advantage. Considering the nature of these two methods, technical analysis can help us to see what has happened in the market based on charts while fundamental can help us to shape the future price movements based on recent economy indicators.
• Look at Volume Trends
When you are looking to trade trends, you can make use of your knowledge on technical and fundamental analysis together. We cannot deny that the
Forex market can be influenced by how other investors think about the market movement. For example, when there is a sudden decrease in volume, it can hint that traders have lost their interest in a certain currency trade.
• Consider the Market Sentiment
At this point, as a trader you will see so-called ‘bias’ in the market sentiment. When there is down-trend, it means that the bias is lower and vice versa. During this situation, being on the right side to buy or sell a currency pair is not enough. You need to find a way to purchase up-trends in cheap price and sell down-trends in expensive price.
The Bottom Line
Briefly, we can see that there is possibility to combine technical and fundamental analysis altogether in forecasting Forex market movement. When both of the methods offer their own focus, we can use it to help on making better decision to enter the market in given situation. Finally, you should not forget to keep learn Forex and master necessary knowledge and skill to win the trades!