2.17 Fundamental vs. Technical vs. Sentiment Analysis

Analyzing the Forex market from all angles
Let’s be clear on one thing here – THERE IS NO HOLY GRAIL! And no "one" method of analysis is superior to the other. 
 
Do not miss any angle in your analysis.Ideally, you would look at all three so that you do not miss any aspect of the market. The fundamental analysis would let you peek into the market’s internals regarding economic data, political events and natural disasters. Sentiment analysis will give you a feel of the market mood given the current fundamental picture. Technical analysis will guide you to the likely movement based on chart history, trends and patterns, indicators and other tools. Technical analysis will also help you to find the right entry and exit points.
 
When you are trading in Forex market, you need market analysis.
 
 
And Market Analysis = (Fundamental + Sentiments + Technical) Analysis.
 
You miss one angle of analysis and your positions can go south. Let’s say the Australian dollar is having a All three types of analysis compliment each other in forex trading.great uptrend great against some other majors and you buy AUD/USD, ignoring the fact that Chinese economy is showing some signs of weakness. Some weak economic data is released from China after you bought AUD/USD and the pair takes a nose dive and your position meets the stop-loss order making a hole in your pocket.
 
You may be wondering why we are talking about Chinese economy for the strength of the Aussie, right? You will learn about this when we talk about various types of currencies. The above mentioned example is a case of both fundamental analysis and sentiments which went against the technical analysis. Aussie’ being a commodity currency takes a hit when the sentiments about global economy go down, and yes China does that to you. The fundamental factor comes in because China is Australia’s largest importer with 29.5% share.
 
The ‘troika’ of your trading strategy will be drawn by all the three horses! Depending only on one view is fraught with danger as you could incur losses from an unexpected corner of the market – one you never considered in your analysis. 
 

It’s OK if you favor one among the three a bit more, but the bottom-line is what works for you, and what you understand well and feel comfortable with. 

 

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