Introduction to Fundamental and Technical Analysis

It is commonly accepted that there are two major schools when formulating a trading strategy for any market, be it securities, futures, or currencies. These two disciplines are called fundamental analysis and technical analysis. The former is based on economic and financial factors while the latter is concerned with price actions. The trader may opt to include elements of both disciplines while honing his personal trading strategy.

Typically, fundamentals are about the long term; technicals are about the short term. Keep in mind what Lord Keynes once wrote: "In the long run, we are all dead." Given the high leverage of currency trading, the long term may be of limited value to the retail FOREX participant.
But they can work in concert. For example, if your fundamental analysis indicates the long term trend of EUR/USD is up, you may use it as a filter on your technical work by only entering buy signals and ignoring the sell signals.

A practical and sensible way for the small trader to access the value of fundamental analysis is in monitoring and watching the myriad of news releases on the fundamentals for each currency. It becomes not so much attempting to find the meaning of a statistic or Federal Reserve statement and where it fits in to the grand scheme of things, but how the market reacts to it.

Tip: The impact of news is where the fundamental analysis rubber hits the FOREX road. Here is where the new trader may meaningfully dig deeper.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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