Combining Technical and Fundamental Analysis in Forex 2024

If you’ve been trading for a while, you probably have your own opinion on this topic.

Maybe you’re a fan of price action, and you think that all you need is a chart and some candlestick patterns.

Or maybe you are a devout follower of fundamental analysis, and you think that the only way to trade Forex is by understanding the economic influences that drive the market.

Or maybe you’re somewhere in between, and you use a mix of both methods.

Well…

What if price action and fundamentals are NOT mutually exclusive but rather… complementary?

What I mean is that there’s NO “one or the other”.

No.

Because it’s both.

You can use both forms of analysis to trade better.

Curious?

Awesome.

That’s what I’m going to show you in this article.

Let’s go over some of the most important topics on the subject, like:

1. How technical and fundamentals can work together.
2. Some practical tips and examples on how to combine them in your trading strategy.
3. And how to use the macro context to properly make sense of the price action.

Sounds interesting?

It is.

So keep reading, because it gets REALLY useful.

What is technical analysis and how to use it in Forex trading:

I know.

You already know what price action is.

But wait…

Do you REALLY know?

Sure, we know that technical analysis is about:

1. Patterns.
2. Trends.
3. Support and resistance levels.
4. Candlestick formations.
5. Market structure.

All these are used to identify trading opportunities and signals.

Right?

Yes.

What’s obvious is that most technical traders don’t care about the fundamentals.

They only care about what the price is doing right now, and what it might do next.

And that sounds like a good approach, doesn’t it?

On paper, yes.

But in reality, you can’t just look at a chart and pretend to know where the market is going to move.

No.

You need to understand the context, the logic, and the reasoning behind each price action.

What do I mean?

Let me show you.

Different types of price action signals:

So, we all know the classic ones, right?

Patterns like:

1. Engulfing candles.
2. Pin bars.
3. Wedges.
4. Double tops and bottoms.
5. Pennants.

Basics.

So I’m NOT going to bore you with classic definitions of all those.

No.

I’m sure you know them already.

And if you don’t…

Google is the way:

Definitions of price action and technicals on Google

With that said.

Let’s get straight to the topic that matters.

How do you use price action effectively?

Well, before we get to that answer we need to understand what fundamental analysis is about.

What is fundamental analysis and how to use it in Forex trading:

Economic data.

Central banks.

Monetary policy.

Ever heard of any of that?

Of course.

That’s the base.

So it’s about analyzing economic data, monetary policy, interest rates, and all that to understand the macro context.

In other words…

It’s about the why, the what, and the how of the market.

More specifically:

It’s about understanding the sentiment behind the price movements, the trends, and the themes of the market.

Make sense so far?

I know.

It sounds complicated.

And yes.

Surely it’s NOT simple.

But it’s neither too complex.

It just requires a lot of curiosity, research, and awareness.

You need to understand the context, the expectations, and the implications behind each fundamental information.

For instance:

1. The relevance of the event.
2. The market expectations of the event.
3. The implications of the fundamental development for the overall market context.

Again…

Sounds complex.

I know.

So let’s make it practical now…

How to combine technical and fundamental analysis:

Alright, the big questions now…

1. How do you combine both of these trading styles effectively?
2. How do you avoid the contradictions that may arise from using both methods?
3. And how do you find the best of both?

Alright.

The answer is relatively simple.

You use both forms of analysis in a complementary way.

What does that mean?

It means that you DON’T have to choose one over the other, you use both.

How?

Let me show you:

1. Use fundamentals to identify the overall direction and sentiment of the market.
2. Use price action to find the best entry and exit points for your trades.
3. And use both forms of analysis to confirm and validate each other.

Alright.

Now let’s get specific.

Fundamentals to identify the overall direction and sentiment of the market:

This is where you assess the direction that the market is likely going to trend to.

I’m going to take some examples from the BeSomebodyFX Telegram channel.

Which is one of the best signal providers that uses fundamental analysis.

For instance:

Trade analysis that uses both technicals and fundamentals

See?

First, the macro context is established.

In this case with the sentiment from the FOMC rate decision.

And as a result, an expected market direction is also established.

In other words…

With fundamental analysis you know where the market is more likely to trend to.

And this is the REAL use of this trading approach.

Cool?

Absolutely.

That’s the role of this type of analysis.

Now.

The next part…

Price action to find the best entry for your trades:

Once you know where the market is going to trend.

What do you do?

You look to position in that direction.

And how do you do it?

You do it by looking at the chart and the price action.

For instance:

Trade that complements both approaches together

Notice how the price action is used to time and confirm an entry into the expected macro context.

If there’s NO technical confirmation.

There’s no entry.

So often when you have a fundamental bias you patiently wait for the technical setup to appear to confirm your trade idea.

Again.

See how both are used in a complementary way in the two trade examples above.

You can see that fundamentals are used for direction.

And technicals are used to confirm the entry.

That’s how it’s done.

So, now let me show you where it gets REALLY interesting.

Use both forms of analysis to confirm and validate each other:

You have already seen how to use both together, right?

Yes.

But there’s more to it.

Because both price action and fundamental analysis can provide useful information and insights about the market.

But they can also be wrong or misleading sometimes.

So?

So you have to trade smart.

Let me show you what I mean…

Have you ever seen a big bullish pin bar on a chart that then gets quickly ignored by the market?

I’m sure you have.

So what’s the point?

The point is that you have to keep in mind is that the market is moved by a lot of different flows.

Some are speculative flows.

But some aren’t.

Why does that matter?

Because when you differentiate between the price action that is created by speculative flows you learn to filter out a lot of false signals.

Curious?

Alright.

Here’s a post that goes MUCH more into details about what I’m talking about:

How price action and fundamentals are complemented together

This above is from a VERY insightful thread on fundamental analysis.

And it explains perfectly how it’s all combined.

Makes sense?

Cool.

And that’s how you combine both technicals and fundamentals:

And there you have it.

A quick but effective guide on how to use both of these popular trading styles together.

Now, it’s time for you to put this knowledge into practice.

Go ahead and apply these methods to your trading.

And if you want to make it even better:

Follow the best signal providers to see how they do it.

That way you can see these concepts in action.

That’s how you build experience.

And that’s the best way to learn and improve your trading.