Trading indicators: Fundamental or Technical Analysis?

One of the key indicators for a successful Forex trade is by correctly predicting the upcoming price movement of a market.

There are various strategies that are used when trading. Some traders follow patterns and some follow the various news to guide them in their decision-making. But these strategies are still categorized if it uses technical analysis or fundamental analysis. Some traders use fundamental analysis, some use technical analysis, some even use a combination of both.

As a trader, it is important to know this two analysis. It can help bolster strategies which can further provide consistent profit for your account.

Technical Analysis

Technical analysis is a methodology that forecasts the direction of market prices through the study of historical market data. It is one of the most common methods in trading. This analysis is very easy to learn and it is well-known to numerous traders especially those who prefer day-trading. Many people think this strategy is some sort of a trading hack because of its high probability to give profit.

Looking at tons of great indicators. Will test a few.

Which ones have you tested so far jmh?

I think that many traders (both new and old) get this wrong and never really dial in risk properly, which inevitably leads to blown accounts and endless frustration.

Here is how to use both fundamentals and technical analysis together for tighter control of when, how and what to trade:

1. Never put on a trade without a "signal." A signal is usually a market or underlying equity fundamental that alerts you to a pattern. Some examples are: Time of day has a fundamental effect on short term price trends, price has been trading sideways for weeks and open interest is therefore very high, options for the underlying are expiring soon, etc.
2. Wait for a "flag" (a defined and much practiced setup) that shows the correct patterns and rules (from a defined trading plan) match the signal from a market fundamental listed in number one above.
3. Execute a trade entry ONLY after "confirmation" which most often comes from technical analysis.

Example:
Trade signal: The NQ futures market has opened the normal US session at 0830 CST after trending up all night during Globex and it is now 0844. Based on fundamentals for this futures contract you know that 15 minute candles usually finish near the extreme edge of their range on trend days and then price immediately tests the countertrend with a retracement or a completely new trend at 0845 and 0900.

Flag: you see the 15 minute candle in the middle of its range and identify a counter trend setup that takes advantage of the probable change of direction.

Confirmation: Price zips to the end of the candle in the last seconds and you take a position from the middle of this candle when price moves back through it and pick up 20 handles.

in summary, fundamentals should always guide what you trade and technical analysis offers confirmation that your directional or situational bias created by the market fundamental is sound and matches the probability requirements of a well tested and practiced flag (or trade setup).

I hope this helps :-) and I am sorry for the book lol. It is early morning and I am using this post to stay awake while ES Globex futures completes the downward move signaled earlier in the evening.

Good luck!
TexasCoffee