Why You Should Combine Fundamental and Technical Analysis?

Traders can use two ways to analyze forex pairs: fundamental and technical analysis. Each technique has its place, and you’ll probably have noticed that your trading strategy tends to favor one over the other. 

If you’re a savvy trader looking to make consistent profits, you have probably wondered whether it’s possible to combine the two strategies. But how would it work?

Well, you would need to use technical analysis to gain insight into an asset’s future price movements. Fundamental analysis would come in handy in assessing the overall health and value of the asset in question. 

A Look into Fundamental and Technical Analysis

We want to start by defining each of these strategies to help illustrate the value of merging them. This will assist in providing context as we guide you on how to combine fundamental and technical analysis. 

Fundamental Analysis: What Is It? 

In forex funding, fundamental analysis involves assessing the value of a company by looking at a combination of factors and not just its stock price. Using this approach, a trader needs to consider several factors, such as overall financial health, future growth prospects, dividends, and company earnings. 

Traders may need to scour through cash flow statements, balance sheets, annual reports, and income statements to gain a better understanding of its position. In fundamental analysis, the idea is quite straightforward: if a trader estimates that its intrinsic value is higher than the current marketplace price, this translates to a buying opportunity. On the other hand, if the value is lower, it means that the stock is likely overrated. 

Technical Analysis: What Is It? 

Anyone who wants to trade forex will need to learn technical analysis, which is rooted in the belief that all applicable information has already been reflected in the company’s stock price.

In technical analysis, the trader will need to spot patterns and trends in trading volumes and stock price movements. Here, traders need to try and predict upcoming stock movements by analyzing historical data. Examples of data they may need to look at will include price charts and corresponding chart patterns.

Unlike fundamental analysis, this method doesn’t pay attention to the firms’ market fundamentals or financial health. Instead, this method relies on trading tools such as moving averages, technical trading indicators, oscillators, and resistance levels to gauge market sentiment. The same holds when it comes to predicting where a stock is headed next. 

Why Blend Fundamental and Technical Analysis

Before we can guide you on how to join these two methods, we must address the question, “Why should I bother?” In verified trader funding, both fundamental and technical analysis serve important roles on their own. So, what are the benefits of using them together?

Gaining a Holistic View of an Asset’s Potential

Integrating both fundamental and technical analysis in your trading strategy will provide you with a 360° perspective of your forex pairs. This is how it works. Fundamental analysis will provide insight into their intrinsic value, while technical analysis will offer a snapshot of potential price movement trends. 

This combination provides a detailed picture, enabling you to make an informed decision that considers the current market dynamics and the underlying health of the pairs.  

Mitigating the Weaknesses of Each Method

No single analytical method is without a shortcoming. For example, technical analysis sometimes tends to miss industry shifts. Fundamental analysis, on the other hand, is known to be less responsive to sudden changes in the forex market.

By blending both methods, you get to use the strengths of one to counterbalance the weaknesses of the other. 

This collaboration provides you with access to a more balanced and resilient currency trading approach. It helps buffer against potential blind spots that might arise when you choose to rely on a single method. 

Predicting Short-Term Movement and Potential Long-Term Value

Technical analysis is a favorite with many day traders due to its ability to highlight possible short-term stock price movements. Conversely, fundamental analysis helps in revealing an asset’s long-term value proposition. This is a perspective often sought by long-term stakeholders and value investors. 

By combining technical and fundamental analysis in capital trading, you’re basically equipping yourself with a dual-lens. This is a lens that will enable you to spot both immediate and long-term opportunities.

Do You Need Both Fundamental and Technical Analysis to Succeed? 

Truth be told, trying to implement either technical or fundamental analysis when assessing an opportunity is a time-consuming affair. This also means that combining both methods will likely double your work! But this doesn’t have to be the case, especially if you know how to combine them. 

Combining Fundamental and Technical Analysis

Combining the strengths of both methods can prove to be a game-changer in verified trader funding. The following is a look at how to get the best of both methods.

Start with Fundamentals and Narrow Down to Technical

The best approach is to start by gaining a bird’s eye view of an asset’s health and industry position. For this, you need fundamental analysis, which will provide you with a wider perspective and enable you to analyze company-specific information such as industry competition, valuation, and earnings. 

Once you have used this criterion to shortlist stocks, use technical analysis to dive deeper. This will enable you to identify potential entry and exit points, potential short-term price movements, and prevailing market sentiment. 

Put simply, fundamental analysis tells you which stocks to buy, while technical analysis guides you on when you should execute that trade.

Tools That Assist in Facilitating a Combined Analysis

The best-verified trader funding platform can make all the difference for a trader keen on blending technical and fundamental analysis. Here’s what you need to keep in mind when selecting a tool:

• Integrated Dashboard: Work with a platform that offers an all-in-one dashboard, such as Audacity Capital. This will ensure you can simultaneously view the firm’s financial metrics and stock price movements.
• Real-Time Data and Alerts: Real-time data is crucial when it comes to forex funding. Access to instant data updates makes it possible for you to set alerts for specific financial metric thresholds. These are invaluable when it comes to keeping up with trends. 
• Customizable Filters: You should use the filters on Audacity Capital to filter stocks based on the criteria you deem essential. Your criteria can rely on either fundamental or technical patterns. Either way, use it to help streamline your stock selection process. 
• Historical Data Access: Although current data is crucial, being able to look at historical stock patterns and financial metrics can provide a better understanding of where a stock is headed. 

How to Interpret Combined Data

As this guide on why you should combine fundamental and technical analysis ends, we want to leave you with a few tips on how to interpret combined data.

• Stay Updated: Try to keep up with current events in the forex market. Remember, the events taking place at any given moment can impact the trajectory of your forex pairs. 
• Be Adaptable: Market conditions will keep on changing. This means that what worked yesterday might not work today. 
• Avoid Confirmation Bias: Avoid relying solely on information that helps reinforce your beliefs. If both your technical and fundamental analysis don’t align, you may want to reconsider your position. 

There you have it – the basics of fundamental and technical analysis and why you should combine both methods. To get the most out of your strategy, make sure to check out the Audacity Capital platform.