Why we need fundamental analysis


In order to have a complete view regarding a specific financial instrument/security/currency pair, etc, one has to analyze it both in terms of technical and fundamental analysis.

While for technical analysis there are different strategies, more or less accurate, different theories (Elliott Waves, Gann, Whyckoff, Pitchfork, etc.) and each and every one works best under specific situations, for fundamental analysis there are only a couple of things to take into consideration, and those are:

  • economic calendar for the whole economy that the financial product you are trading is being part of:
    • if one is trading a specific currency pair, then the trader should look in the economic calendar for the economic releases that are more likely to influence the economies whose currencies form that specific pair;
    • if one is trading a specific equity, then the trader should look at the internal calendar of that specific company to find out any relevant information regarding earnings, dividends, company’s management, etc. that may influence the equity price, and also should look at the bigger picture (economy) the company is being part of, and what kind of economic releases are influencing that specific economy;
  • schedulled press conferences central bankers in the world are holding on a regular basis, naming a few below:
    • ECB (European Central Bank) is holding a press conference each first Thursday of the month, explaining the reasoning for the decision they took on interest rates and answering questions from the press;
    • Federal Reserve Governor’s testimony to be held after FOMC (Federal Open Market Committee) statement (but not after every meeting) with the purpose of providing guidance for the future of the US economy.
  • other factors:
  • EU Summits;
  • G20, G7, etc. meetings that are having the potential of bringing something new for the whole gloabalized world and this is potentially influencing trading all over the world;
  • economic reunions: Davos, Jackson Hole, etc.

In conclusion, it is impossible, or, if you want, it will be only half the analysis complete to look at some specific instrument to trade and not take into consideration fundamental analysis, as sometimes decisions taking by central bankers, heads of states, etc, are game changers and affect the trading world all together, so even if your technical analysis on that instrument was right, fundamentals have the power to change that.

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