Currency Technical and Fundamental Analysis | ForexGen

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Many traders combine the methods of currency technical and fundamental analysis to their systems.

There are several popular ways to doing this, and there are many very successful traders, including Louis Bacon Moore, Paul Tudor Jones, and Jim Rogers, who reportedly combine fundamental analysis with technical analysis.

One of the most popular ways to do this is to use technical analysis as the base tool, and only use fundamental analysis as a way to override the signals, if needed. For example, with fundamental analysis, you may determine that the political risk of a country manipulating and devaluing its currency from free float is so great that you decide to override a bullish signal that comes from technical analysis.

Another way to do this is to use fundamental analysis to determine which markets to enter and when. For example, your fundamental analysis may determine that countries in Europe that are likely candidates for both European Union membership and Eurozone will have their currencies converge into a certain level. Because that assessment would indicate a trend developing, you then enter that market with the technical analysis trading system.

Of course, you can do it the other way around, as reportedly Jim Rogers does for his commodities trading. That means you focus on the fundamentals of the market, but use technical analysis as a supplementary method to either strengthen your view or as an evidence against it.

The beneficial side of fundamental analysis is that there are masses of investors who do not do their own research. Instead, they rely on research done by brokerages and investment banks. Often, these analysts are not fully aware of all the fundamentals affecting the asset, which can leave opportunities for those that are better aware of the market realities.

In comparison to technical analysis, most of them are mathematical models that traders use with the same data, coming to same conclusions at the same time.

Academically, however, according to the efficient market hypothesis, neither method should be able to provide a basis for profitable trading, due to the assumption that prices reflect all the available information on the asset class, including analysis of the past prices that technical analysts use.

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