How To Combine Technical & Fundamental Analysis?

This video will explain how you can use technical analysis to compliment fundamental analysis.
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An experienced currency analyst that specialises in short term sentiment and news driven trading.
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Technical And Fundamental Analysis – The Perfect Partnership

After a couple of questions about combining technical analysis with fundamental analysis, we’ve decided to just do a quick video to explain this in a little bit more detail.

So in order to combine these two analysis methods together, or do so correctly, we first need to understand what each of them were designed to do, and how they were intended to be used.


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So think of this as a spoon and a fork, right. So you can try to eat chicken soup, or perhaps vegetable soup in case you’re a vegetarian, with a fork.

You can try to eat soup with a fork, but a fork wasn’t intended to be used for soup, right. It was intended to be used for other things. So that is why you have something called a spoon, which is much better suited for eating something like soup.

Now in this same way, we need to make sure that we are using technical and fundamental analysis in the ways that they were intended to be used. So starting with finding a trade direction, and the right time to trade, that is where our fundamental analysis will come into play.

We basically do that by evaluating which currencies are strong and weak and expected to remain strong and remain weak based on their macro fundamental bias, the short term sentiment, whether that is based on intermarket analysis or risk sentiment.

This will tell us which currencies we should be trading, which of them are expecting to be strong and weak, and then of course, that’ll give us the right direction to be trading in line with that currency pair, and of course based on the type of sentiment that we’re trading, that’ll also give us the time that we should be trading.

For example, just because we’re expecting a central bank, let’s call it Central Bank A, to cut rates, and Central Bank B to hike rates, that doesn’t necessarily mean that the currency pay for those two currencies are an automatic buy or sell. Ideally, we would want to time our entries so that the current short term sentiment is also aligned with that broader view of the macro fundamentals.

So once you have your currency pay and your direction you need to trade in, then you can use one of the many many technical indicators or technical strategies out there to your advantage, whether that is using indicators, or using support and resistance or supply and demand, or chart patterns, or candlesticks, whatever. It doesn’t really matter or make a difference as most technical strategies should work much better if you already know in which direction you should be trading.

So keep in mind that many traders don’t sometimes even rely on any of that, and only use basics like support and resistance structures, and don’t even use candlestick charts, they just use line charts once they know in which direction they should be trading.

So just to summarize, we use the fundamentals to show us what to trade, and in which direction to trade, and then of course, when to trade it. And when we have that in place, of course we can use the technicals to give us the high probability entries and exit zones on the chart. So let’s just use today’s dominant sentiment theme as a good example.

Now keep in mind, if you are watching this video a day from now, or a week or a month or a year from now in the terminal, this sentiment is based on this particular pair for this particular sentiment on this particular day, which is the 19th of May, so just keep that in mind if you’re watching this afterwards.

Now in today’s session, we’ve seen an overall risk on turning the market, which has led to support across the board for the high beta currencies like the kiwi. The kiwi dollar currently leading the pack to the up side, and we’ve also seen that risk on tone leading to weakness in the Japanese yen, which is the weakest currency for the day in today’s session.

So that gives us the currency pair, as well as the direction we need to trade in, right? Now we can turn to the time, when do we need to trade this pair now. Then we can ask what type of sentiment we’re trading. Is the sentiment that is driving this pair higher, is it very fresh as of today?

Not really, it’s the same positive sentiment from the prior day’s session, which means that we don’t need to jump in immediately, we can wait for a possible pullback, and enter the pair from a more attractive level. Now in this case, we basically use basic support and resistance structures, and highlighted this 65 psychological level as a high probability opportunity to look to reengage the pair to the upside with, and using the same very basic support and resistance zones as well as the eight-year high, we are led that this overall area to expect some resistance from, meaning that that is a good spot to look to reduce some risk and bank some pips on that expected move to the upside.

So that is just a quick way of how we can look to combine something like technical analysis and fundamental analysis, and use them from the right ways in which they were intended to be done.

So I hope that helps. If there’s any other questions as usual, don’t hesitate to let us know.


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