KCMtrade: How to choose between fundamentals and technical aspects in foreign exchange trading?

What is fundamental analysis?

Fundamental analysis is the analysis of the current core factors that affect an economic entity such as stocks and foreign exchange. Forecast the price movement of a business sector by analyzing economic indicators, official policies, social or other factors.

If you think of the market as a giant clock, the fundamentals are the gears and clockwork that power it. Anyone can tell what time it is, but only if you know the fundamentals can you know what makes the clock (or the price) go.

Fundamentals? Or technical?

Fundamental analysis and technical analysis are the two main methods of market analysis when making foreign exchange investments. Fundamental analysis focuses on analyzing a country's economic data and political changes, while technical analysis starts with chart patterns and uses technical theory to judge the future trend of currencies. It cannot be generalized as to which of the two is better. In fact, most wise traders tend to combine the two rather than simply use either side.

Using models to predict the economic situation

Fundamental analysis is very effective in forecasting economic conditions, but it cannot help you accurately predict exchange rate prices. Analyzing GDP or employment data can help you get a general idea of a country's economic situation and the reasons behind it, but you still need to somehow translate it into specific entry and exit trading levels.

The bridge between fundamental data and trading strategies comes from trading models. These models use current or historical empirical data to predict future exchange rate developments and translate them into specific trading strategies.

Prevention of "gain and loss disorder"

Predictive models are a combination of emotion and reason. Due to their many ways, traders may be at a loss to learn and apply. It's hard to say when you can confidently confirm the timing of your order.

Therefore, many traders turn to technical analysis at this time to validate their predictions and observe entry signals from price patterns.

Let's look at the fundamental factors first

Fundamentals encompass all the factors that drive a country's economy and currency. From interest rates and central bank policy to natural disasters, fundamentals are a dynamic combination of unique plans, unusual behaviour and unknown events.

Therefore, not every change can cause fluctuations in a country's currency. It is recommended that you start by grasping the main contradictions, first grasping the decisive factors, rather than grasping them. Rather than focusing on all fundamental data, we recommend that you first grasp the most influential factors in the fundamental portfolio.