Technical analysis by definition is ‘an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume’.
Fundamental analysis considers the overall state of the economy and factors including interest rates, production, earnings, employment, GDP, housing, manufacturing and management.
Which one is better?
We get this question quite a lot because some people are unsure whether to focus on the charts (technical analysis) or to focus on fundamental analysis of a currency before placing a trade, or do you need to be doing both?
The simple answer for this is that you can choose one or another as a trader. There are very profitable traders trading a technical analysis style of trading and there are very profitable traders trading a fundamental style of trading.
Most typically you will see shorter term investors focus on the technicals.
And longer term investors focus on the fundamentals of price action.
The reason for this is that when you are looking at fundamentals you are looking at the underneath surface of what you are investing in, – the best way to describe it is that you are looking at the foundation of a company or economy. It's going to take a long time to make any kind of change when looking this way at the market.
If you are into more day trading with short to medium term holds there is a very high chance you will fall into the technical analysis side of trading.
Technical analysis is most commonly used for day trading, swing trading, options trading.
A stock or currency will not be able to make product quick enough, make changes to thousands of employees quick enough and totally turn the boat around when it comes to the fundamentals, these things take time.
Having said that the two forms of analysis are not too dissimilar from one another when it comes to price action on your charts.
Stocks, currencies, cryptocurrencies that have great technical and great charts will more often than not have great fundamentals to back, and vice versa stocks, currencies and cryptocurrencies that have bad charts will often have underlying poor fundamentals. This is why you will hear us say the phrase ‘news creates volatility not direction’. It's very common for a new event or data release to coincide with the technicals that are displayed in front of them on the charts.
The Social Traders are technical analysis traders, on the lower time frames within charting technicals will dominate the fundamentals and this is where we spend most of our time.
Having said that, The Social traders will keep an eye on fundamentals to keep razor sharp on the charts. Everyday our Pro members will get access to the most up to date fundamentals that could move the market – this is so that we are aware of periods within the day that could cause unexpected volatility.
This is a short term play area of interest we were looking at for USDCAD, as you can see the technicals line up. We have a nice pattern break of structure, we have orders resting above highs and we have clear unmitigated order left below the market at 1.23000. This gives us a clear entry point to look to trade.
At 1:30 GMT on this day we had the Bank of Canada Rate Statement.
The BoC Rate Statement is the primary tool the BOC uses to communicate with investors about monetary policy. It contains the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions.
This is the USDCAD chart after the release:
“News creates volatility not direction”