Technical vs. Fundamental Analysis

There are strong advocates for both fundamental and technical trading.

Some argue that the fundamentals alone drive the market and that any patterns found on charts are simply coincidence. Others argue that it is the technicals that traders pay attention to and as such, common market patterns can be found to help predict future price movements, rendering the fundamentals irrelevant.

Professional forex traders use both types of analysis.

The original strategy that underpins our strategy uses strictly technical analysis. That's a major flaw. At times we would be in a profitable trade when all of a sudden a candlestick would shoot in the opposite direction of our trade (sometimes by as much as 100 pips) hitting our stop. This first happened at 8:30 am on the first Friday of a particular month. Of course, we soon realized this is when the U.S. Non-farm Payroll data is released, usually causing extreme volatility. The smart technical trader knows to stay out of the market at such times.

This is one of the refinements included in our final strategy. We take the fundamentals into account.

To trade profitably, you can't ignore the fundamentals. Neither should you ignore the technicals.