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How to Combine Technical and Fundamental Analysis in Day Trading

by Meir Barak | based on content from the Market Whisperer – day trading book


The long-standing dispute between proponents of technical analysis and fundamental analysis began when the first analyst drew a line between two points representing a stock’s price changes over time, thereby creating the very first price chart. The essence of the dispute is whether to buy a stock based on company and market performance (such as the company’s balance sheet), or based on the stock’s behavior (as illustrated by the chart alone).
Both strategies attempt to predict price trends. As already noted, the fundamental economic investor examines the stock’s value relative to company performance and market performance, and decides whether its price is above or below its true value. If, in the long-term investor’s opinion, the price is currently below its true value, he or she will buy. The technical trader does not ask “why,” but instead tries to predict price trends according to graphs displaying both historical and real-time data.
Day Traders Find Success Combining Technical and Fundamental Analysis
Most of those involved in the stock market define themselves as purely fundamental or purely technical. However, some day traders have found great live trading success by integrating the tools of fundamental analysis with those of technical analysis.
History has proven that the technical strategy has always outshined economic analysis. Most of the largest market trends occurring throughout history were ascribed no significant explanation according to economic data, yet most could be predicted based on technical conduct. Experienced technical traders learn over time to trust their own considerations, which will often stand in direct opposition to those proposed by fundamental economic analysts.
Why, then, would day traders want to incorporate fundamental analysis in their decision-making when they day trade? First and foremost, because most of the public uses it. As soon as a large enough number of people believe in the value of fundamental analysis and begin to buy and sell stocks on the basis of those beliefs, the experienced day trader will want to know how to take advantage of the predicted movement and earn a livelihood from it.
Day Traders Can Use Fundamental Analysis for Their Own Purposes
Experienced day traders can learn to appreciate the power of the fundamental herd and to rein it in for their own day trading purposes. For example, they can focus on stocks influenced by extreme economic analysis, such as an analyst’s upgrade, but then choose a technical entry and exit point.
Using fundamental economic analysis does not in any way indicate that day traders believe in that strategy, but only that they are firm believers in the predictable behavioral outcomes of those who do use it. As a day trader, you have no need to deny any kind of prediction. Rather, you need to evaluate whether it will be self-fulfilling.
In summary, integrating the tools of fundamental analysis with those of technical analysis can be a winning combination for day traders. We would recommend an 80% technical and 20% fundamental mix.

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