Technical vs. Fundamental Analysis: Can You Trade Successfully Using Only One Approach?

Ben Graham · 9 horas atrás

Technical vs. Fundamental Analysis

Analytical Approach

Capital preservation is a key to longevity in the trading business. One reason is that markets can stay irrational longer than you can stay solvent. Nowhere is this truer than in leveraged trading, where a small account can control positions many times its size. When markets become unpredictable, relying on only one style of analysis, either technical or fundamental, can quickly test your risk tolerance.

This raises a common question among traders:

Should you trade solely on technical analysis, purely on fundamentals, or use both?

The real answer is more nuanced than most expect.

Why Relying Only on Fundamentals Can Be Risky for Most Traders

Unless you have deep pockets or institutional-level staying power, trading purely on macro or economic fundamentals can be difficult. Markets often move irrationally in the short term, and fundamental themes can take days, weeks, or even months to fully play out.

That’s why many retail and short-term traders lean more heavily on technical analysis and charts that react immediately, while fundamentals take time to digest.

But that does not mean fundamentals should be ignored.

At minimum, every trader should understand the economic backdrop so they can interpret breaking news, anticipate volatility, avoid getting blindsided by surprise data releases and evaluate the significance of key events.

A Real-World Example: When Fundamentals Flip the Script

Consider a U.S. Nonfarm Payrolls report:

The headline number came in far below expectations
Bond yields fell
U.S. dollar dropped
Stocks sold off

The initial knee jerk reaction appeared textbook but markets quickly retraced the entire move.

Why?

A deeper look revealed the data was distorted by temporary factors such as severe weather. . In addition, the prior month’s non-farm payroll data was revised higher.

Once traders processed this, fundamentals shifted the narrative, and technicals helped guide the reversal as bond yields rebounded and risk assets stabilized.

Understanding the Two Major Trading Approaches

Technical Analysis focuses on:

Price action, chart patterns, support/resistance and indicators such as moving averages, RSI, MACD, Fibonacci levels, and volume.

History repeats:

Core belief is that historical price behavior tends to repeat, and prices reflect all available information.

How it is used

For short-term trading, timing entries and exits, identifying trend continuation, breakouts or reversals.

Limitations:
Technical analysis does not directly consider economic or geopolitical factors affecting the value of an asset.

Analytical Approach

XAUUSD: Long-term trend: Up, Shorter term trend: Consolidation

Long-term (monthly uptrend)

Shorter-term (4 hour consolidation)

Fundamental Analysis focuses on:

Economic data, financial factors, market sentiment, interest rates, inflation, corporate performance (for stocks), and geopolitical developments.

Return to fair value
An asset eventually returns to its fair value based on underlying fundamentals.

How it is used
Long-term investing and understanding what truly drives supply and demand.

Limitations:
Fundamental values can take time to be reflected in price, and short-term sentiment can overshadow data.

Global-View Economic Data Calendar

Do You Really Have to Choose One?

The most successful traders understand something important:
Technical and fundamental analysis are not in competition but complement each other

Technicals help pinpoint timing, momentum, and risk management

Fundamentals explain why the market is moving and whether a trend is sustainable

Short-term traders may lean heavily on charts, but ignoring fundamentals around major events (e.g. NFP, CPI, central bank decisions, geopolitical shocks is a recipe for unnecessary losses.

Long-term traders may rely on macro data, but technical signals help refine entries and avoid buying too early or selling too late.

The Best Strategy Blends Both Worlds

While it’s possible to trade using primarily technical analysis, especially in short-term forex or leveraged environments, ignoring fundamentals entirely is dangerous. Fundamentals can trigger the move, shift market sentiment, or completely reverse a trend as seen in countless economic releases.

The traders who survive long-term tend to do one thing well: use technicals for precision and fundamentals for direction. Strongest trends are those where fundamentals support what technicals are showing