How do you blend technical and fundamental analysis for investing?

1 Understand your goals and style

Before you start blending technical and fundamental analysis, you need to know your investing goals and style. Are you a long-term investor or a short-term trader? Are you looking for growth or income? Are you risk-averse or risk-tolerant? These factors will influence how much weight you give to each type of analysis and what tools and indicators you use. For example, if you are a long-term investor, you might rely more on fundamental analysis to identify undervalued or overvalued assets, and use technical analysis to time your entry and exit points. If you are a short-term trader, you might use technical analysis to spot trends and signals, and use fundamental analysis to confirm or reject them.

2 Use multiple time frames

One way to blend technical and fundamental analysis is to use multiple time frames to analyze the market. For example, you can use a longer time frame, such as a weekly or monthly chart, to identify the overall trend and the major support and resistance levels of the asset. Then, you can use a shorter time frame, such as a daily or hourly chart, to find the optimal entry and exit points within the trend. You can also use different time frames to compare the technical and fundamental indicators of the asset. For example, you can use a longer time frame to check the earnings, dividends, or valuation ratios of the asset, and a shorter time frame to check the volume, momentum, or moving averages of the asset.

3 Combine different types of indicators

Another way to blend technical and fundamental analysis is to combine different types of indicators that measure different aspects of the market. For example, you can use trend indicators, such as moving averages or trend lines, to determine the direction and strength of the price movement. Then, you can use oscillators, such as RSI or MACD, to measure the momentum and overbought or oversold conditions of the price. You can also use volume indicators, such as OBV or ADL, to confirm or contradict the price action and the demand and supply of the asset. On the fundamental side, you can use indicators that measure the profitability, growth, value, or quality of the asset, such as EPS, P/E, ROE, or D/E.

4 Test and adjust your strategy

Finally, you need to test and adjust your strategy based on your results and feedback. Blending technical and fundamental analysis is not a one-size-fits-all solution, and you need to find the optimal mix that suits your goals and style. You can use backtesting, paper trading, or demo accounts to test your strategy on historical or simulated data, and see how it performs under different market conditions and scenarios. You can also use performance metrics, such as Sharpe ratio, drawdown, or win rate, to evaluate your strategy and compare it with other strategies or benchmarks. You should also review your strategy periodically and make adjustments based on your observations and learning.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?