The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start

CHAPTER 6

Essentials of Fundamental Analysis

This chapter will cover:

• Using Fundamental Analysis (FA) and Technical Analysis (TA) Together
• An Overview of FA: Main Fundamental Drivers of Forex Trends
• News Trading: Day Trading on Short-Term Fundamentals
• FA Basics: Easy to Understand, Hard to Apply
• Therefore, Get Thee to an Analyst
• Combining FA and TA: An Example

While technical analysis (TA) focuses solely on patterns in price movements with no attempt to discern what drives them, fundamental analysis (FA) does the opposite. It attempts to identify all the economic, social, and political forces that affect supply and demand for an asset, and ideally, use them to forecast its future price.

Leaving aside the debate over which is more important, the practical fact is that you need both. Here's the short version of how you combine them.

Use FA to attempt to forecast both the longer term trend and the short term market reaction to news events, and plan your overall strategy accordingly. However, its very hard to know when deeper fundamentals will actually start to influence price movements.

Therefore, use TA to time entries and exits. It may not tell you much about what's behind a given trend or chart pattern, but it's great for telling you when price has actually started to move, how markets are actually behaving, how they're feeling, how strongly they're feeling it, and what is a low or high price for a particular period.

TA vastly improves your ability to buy low and sell high over ...