Traders in the beginning usually wonder what should be their first step / Which strategy to choose or what to pay attention to; while entering any global financial markets? One of the first most important thing traders learn is that there are two distinct types of analysis – Technical and Fundamental. Combining both of the fundamental and technical analysis, one might know and understand the market better and predict the future direction of the price movement with higher accuracy.
In order to comprehend the combination of these two analyses, one should first need to understand both the analysis clearly along with their distinct features.
Technical analysis is constructed around price chart analysis. Technical analysts use past price performance to draw certain assumptions and estimate existing market conditions. By using support and resistance levels along with technical indicators, traders can determine finest entry and exit points (when it is possible to enter and exit deal). This type of analysis can give a plethora of useful information and help predict the direction of a future trend. However, it can hardly tell what price will be in the long run, as the price chart cannot offer extensive information on the future performance of an asset.
Fundamental analysis, on the other side, is revolved around the study of real-life phenomena which can affect the price of the asset. The direction of the latter will depend upon the information provided in the said release. The good news (outstanding financial performance, new cost-cutting initiative, higher than anticipated growth prospects) optimistically affects fundamentals. The bad news (poor financial performance, bad press coverage) pessimistically disturbs intrinsic value and drag the market price down, as well. The same principals are applied to currencies, commodities, ETFs and all the exchange-traded assets.
Combining Fundamental and technical analysis is not an easy task, yet it can be useful in a number of ways. Keeping track of the recent trading volume and monitoring the activity is one of the wisest decisions. A trader can use volume indicators to check the power of a dominant trend, as a rule, trading volume accelerates when a trend gains momentum. When trading volumes decline, it can be a sign of an upcoming trend reversal. Market behavior is determined by the actions of specific traders.
The experts of Traders Factory (which is the best signals provider company) generally depict when to enter, exit or put a stop loss for a currency pair.