Combining Fundamental Analysis (FANA) and Technical Analysis (TA)

Combining Fundamental and Technical Analysis – Fundamental and technical analysis can be combined to provide a comprehensive forex trading strategy. Traders often compare the differences between the two, but merging both approaches can offer significant benefits. While it’s challenging to determine which method is superior, combining them can lead to more confident trading decisions.

1. WAYS TO COMBINE FUNDAMENTAL AND TECHNICAL ANALYSIS

There are several ways to merge fundamental and technical analysis. Below are examples of how three technical analysis methods can be combined with fundamental analysis to provide deeper insights, including:

– Combining Range Trading with Fundamental Analysis
– Combining Breakout Trading with Fundamental Analysis
– Using Oscillators with Fundamental Analysis

2. RANGE TRADING WITH FUNDAMENTAL ANALYSIS

Range trading aims to identify a market’s price channel, where traders buy at support along the lower trendline and sell at resistance along the upper trendline.

The chart below illustrates a strong uptrend in the EUR/USD pair. In a strong upward market trend, traders seek to enter trades or buy at the lowest possible levels to maximize their strategy. However, news events can disrupt range-bound markets. In this case, traders avoid opening trades around news releases (such as “retail sales” and “durable goods orders” data). The chart shows a clear disruption, as indicated, before prices return to the previous range.

3. BREAKOUT TRADING WITH FUNDAMENTAL ANALYSIS

A breakout trading strategy involves capitalizing on a security’s price moving outside a predetermined trading range, often driven by news events.

While range traders should be cautious when news is released — as additional volatility may break through the support and/or resistance levels they use to set stop orders — they can still look to take advantage of news-driven price surges.

In these cases, traders will wait for news or data that pushes the price to test support and/or resistance levels. Once one of these levels is tested, traders may consider buying or selling accordingly. Breakout trades can be found with any defined support and resistance mechanism, anticipating that the released news will provide the desired volatility to:

a) Trigger the trade.
b) Move the trade closer to the trader’s profit target (limit).

4. USING OSCILLATORS WITH FUNDAMENTAL ANALYSIS

Oscillators are commonly used technical tools to detect short-term overbought/oversold conditions. The chart above includes an example of using the RSI indicator (technical) in combination with the Non-Farm Payroll (NFP) data release (fundamental), one of the most significant U.S. economic indicators. A lower-than-expected NFP figure weakened the USD, as demonstrated by the sharp upward movement in the EUR/USD pair.

When NFP is about to be released and you expect it to be lower than estimated based on recent events in the U.S., this means that the EUR/USD pair could become more volatile, making it a potential sell option, and vice versa. Oscillators can further support entry and exit points with corresponding timing.

5. SUMMARY

Technical analysis can be an extremely informative technique for analyzing the market, but it’s important to note that fundamentals play a role in the overall picture. The content above has provided practical scenarios in combining fundamental and technical analysis.

Traders can experiment with technical, fundamental, and combined methods before deciding on a trading strategy. You should test different methods on a demo trading account before trading with real funds.