Can You Use Both Fundamental And Technical Analysis?
Trading analysis is great way to know what to trade and when to trade. Novice traders often get puzzled about what should they use for analyzing the market.
On the other hand, experienced traders use technical and fundamental analysis combinedly to gather information from the market.
Before that, traders have to learn the basics of two analyses. In this blog post, we will give you a short description of Fundamental and Technical analysis. We will also show you how to use these two complementary types of trading analysis together.
So, to make you understand, we will start with a short description of each of them with features.
What Is Technical Analysis
Technical analysis is a method where you have to use the market data with past prices to predict the future price. Forecasting the future price is the main objective of Technical analysis.
Moreover, you have to use different charts and graphs to identify future assets’ prices. Traders can determine the optimal entry and exit points of trades, by using support and resistance levels.
Furthermore, technical analysis indicators also help traders to find out the most appropriate open and close points. You will find a wide range of trading patterns and signals to support technical analysis trading.
By providing useful information, this analysis help traders to predict the direction of upcoming trends. However, the price chart cannot provide extensive information.
What Is Fundamental Analysis
The fundamental analysis is helpful for traders to forecast the asset price by using real-life events. The asset price can affect depending on what type of corporate news will release.
Furthermore, via fundamental analysis, traders analyze the financial health of a particular company. So, you have to analyze the income statements, balance sheets, cash flow, and other publicly available documents for that.
It is mandatory to state that good news will always positively affect the asset price movement. On the other hand, bad news will negatively affect the intrinsic value and drag the market price down.
How To Combine Technical And Fundamental Analysis
As we said earlier, expert traders use these two analyses together before opening any position. However, you will find some differences between fundamental and technical analysis.
To predict the future price, you don’t have to research on economic data on technical analysis trading. On the other hand, you don’t need to choose any of this between these two trading analyses. Both are useful for traders.
For new traders, it is not an effortless task to combine technical and fundamental analysis. Keep track of recent trading volume. It is wise to check the activity of other traders as well.
Traders can use the volume indicators to check the trend. You will get the signal of an upcoming trend reversal when the trading volume goes down. Similarly, the trading volume will go up when a trend gets momentum.
Additionally, if you use fundamental analysis as the primary analysis tool, you may also use technical analysis for making strategies.
Basically, traders can combine the principle of fundamental and technical analysis. As per the IQ Option analysis team
Traders can trace the connection between fundamental events and signals, received from technical indicators, and use it to spot certain patterns.
In summary, it is equally important to use these two trading analysis methods for traders. One of the analysis will help you to predict the future after analyzing past performance. At the same time, the other one will sift you towards future events.
But, you have to know how to merge these two methods to avoid any financial risk. You should also remember that it is impossible to estimate the 100% correct future price.
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