What do you do if technical analysis and fundamental analysis are at odds?

2 Scenario 2: Bearish fundamentals, bullish technicals

Another possible situation is when the fundamental analysis suggests that the asset is overvalued, has poor growth prospects, and is affected by negative economic conditions, but the technical analysis indicates that the asset is in an uptrend, has strong momentum, and breaks above support levels. In this case, you may want to adopt a contrarian approach and look for signs of reversal or exhaustion in the technicals before entering a short position. Alternatively, you may decide to take a small position based on the technicals and use fundamental analysis to monitor the risk and reward of the trade. You may also look for other factors that could explain the discrepancy, such as market expectations, earnings surprises, or catalysts.

3 Scenario 3: Mixed fundamentals, mixed technicals

A third possible situation is when the fundamental analysis and the technical analysis give you mixed or inconclusive signals about the asset. For example, the fundamental analysis may show that the asset has some positive and some negative aspects, such as high earnings but low revenues, or strong growth but high debt. Similarly, the technical analysis may show that the asset is in a range-bound or sideways market, with no clear trend or direction. In this case, you may want to adopt a neutral or flexible approach and look for more clarity or confirmation from either the fundamentals or the technicals before making a decision. Alternatively, you may decide to use other tools or methods to complement your analysis, such as sentiment analysis, portfolio diversification, or risk management.

4 Scenario 4: Consistent fundamentals, consistent technicals

A fourth possible situation is when the fundamental analysis and the technical analysis give you consistent and coherent signals about the asset. For example, the fundamental analysis may show that the asset is fairly valued, has stable growth prospects, and is in line with the economic conditions. Similarly, the technical analysis may show that the asset is in a clear and steady trend, with strong support and resistance levels. In this case, you may want to adopt a confident and consistent approach and follow the signals from both the fundamentals and the technicals to enter and exit your positions. Alternatively, you may decide to use other criteria or preferences to fine-tune your trading strategy, such as time horizon, risk tolerance, or market outlook.

6 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?