Fundamental analysis versus technical analysis is a topic that most analysts who want to teach you how to trade avoid, because their story is about teaching you techniques and seeing your charts full of charts. indicators so that you are more confused as to what to look for.
Technical analysis recognizes price trends on charts, identifies support and resistance and a whole range of momentum, stochastic and volume indicators. We use these metrics to spot patterns, entries and profit targets. The techniques are all good, but without the fundamental factor there is no real benefit. Techniques are something everyone should know about if they plan to negotiate and want to be consistent, but it shouldn't end there.
The key is to have the fundamentals and techniques working side by side and generate a real advantage, which means a higher probability for each trade to be profitable. Whether we are using the fundamentals alone or the techniques alone, there is no way to achieve high results with true consistency.
Fundamental analysis is all about keeping an eye and researching the economic performance of the countries of the major currencies. Listen to and read economic statements from central banks and key members of central banks. Assess whether the countries' economy is growing, expanding or weakening, correlating inflation with the imposed interest rate set by central banks. Pay attention to monetary policies and decipher the impact of CPI inflations on the economy and actions taken by central banks.
Let's look at QE (Quantitative Easing) for example, the euro was weak in the 4th quarter of 2014 and early 2015 with the potential to weaken even further, this in part thanks to the announcement of QE by the ECB (European Central Bank) statement of its introduction. The euro has basically started to weaken because of this and the strong US economy has been the catalyst for why we are seeing a massive downtrend for over 4-5 months without much pullbacks significant. Now imagine not knowing it and buying EUR purely on the basis of technical analysis, it is a sure way to fail over and over again and not identify the central problem that is fundamental.
The best thing any trader can do to achieve consistent profit and success is to incorporate fundamental analysis as the primary in their trading plan and then consider the technical factors thus increasing the likelihood of each individual trade.
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