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Wednesday, October 23, 2024

Combine technical and fundamental analysis for profitable trades

Technical analysis is a method of projectively deciphering price action using chart patterns, indicators, and past trends.

• October 23, 2024
A lady writing on a note pad with a stock trading screen in front of her to illustrate the story
A lady writing on a note pad with a stock trading screen in front of her to illustrate the story

In the fast-paced world of trading, relying on a single method will likely leave traders unprepared for sudden, significant market shifts. A blend of technical and fundamental analysis produces a workable approach for many medium-term traders who want to be right and make money. This makes sure that the decision is strong by combining the identification of chart patterns with a review of market data, allowing one to view the market movements and trends of prices from a more holistic aspect. 

Role of technical analysis in medium-term trading

Technical analysis is a method of projectively deciphering price action using chart patterns, indicators, and past trends. Medium-term traders rely on this form of analysis as the only predictor of future movements in the market based on past performance. Traders form these by identifying head and shoulders, double tops, triangles, or other patterns that indicate potential trend reversals or continuations.

Chart patterns provide the entry and exit points, the basics of medium-term trading. For instance, the breakout from consolidation can give a good buy signal when the market rises from its resistance levels, warning of an imminent downtrend. On the contrary, by observing price charts weekly or monthly, traders can expect where the market may head towards.

Effects of fundamental analysis on trade decisions

While technical analysis focuses on price action, fundamental analysis peers into what’s driving those prices to fluctuate. It looks at market conditions leading to economic indicators, interest rates, inflation, earnings reports, geopolitical conflict, etc. This analysis gives a medium-term trader the necessary context for price patterns that technical analysis exposes.

Including market data within a trading strategy helps traders estimate changes that might happen in the market resulting from a macroeconomic event. For example, in the case of a rate hike by a central bank, major price movements may occur, which confirms or contradicts the signal given through technical analysis. In the same regard, it can reflect when a company has released a very strong quarterly income, thereby justifying an upside breakout from a significant resistance level apparent in a chart.

Traders who consider only technical analysis might miss the big picture in economic terms, which can sometimes lead to faulty predictions or ill-timed trades. For that reason, blending fundamental insights into your technical indicators will make you a better-informed trader when holding positions for medium-term trades that last weeks to months. Such platforms as Exness Insights can assist traders in getting on-time information about important events and deep analysis regarding the behaviour of fundamental trends.

Interaction between technical and fundamental analysis

Combining technical with fundamental analysis will enable traders to take advantage of the strong points of both approaches and thus work out a balanced strategy. An example might be that a swing trader has identified an emerging bullish chart pattern, suggesting the security is near entering an uptrend. 

Without confirmation of that move through fundamental data—such as strong earnings reports or positive economic indicators—a false breakout may trap the trader. If both technical and fundamental analysis support the trade, the trader’s confidence increases, reducing the likelihood of surprises by sudden market reversals.

Fundamental analysis may suggest that a currency or stock is undervalued based on economic data. In this case, technical analysis can define the best entry by using indicators and patterns to determine the perfect time to enter the trade. This way, both analyses combine to create something more complete and accurate so that the trader does not enter too prematurely or too late.

More intelligent decision-making for medium-term traders

Adding chart patterns to market data brings real added value to medium-term traders. Traders who use a blended approach gain a more comprehensive perspective by combining price action signals with a deeper understanding of the broader market context in which those signals occur. This broad-based approach will prevent undue dependence on either method and position the trader to profit from market movements that take place within a timeframe of weeks or months.

The blend of technical and fundamental analysis allows traders to cope with market volatility. While technical analysis is efficient in identifying trends and points of correct entry, it is the fundamental ones that are able to provide substantial input regarding the long-term viability of the trends. Together, these methods can form one fearsome armoury: they strengthen decision-making and increase the potential for profitable trades in medium-term trading strategies.

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