Most traders either fall into the technical analysis camp or the fundamental analysis camp when describing their trading strategies. However, both technical and fundamentals play pivotal roles in driving the fx market.
Incorporating both types of analysis into an EA can be difficult due to the different frequencies of data (quarterly/monthly for most fundamental data vs. intraday for technical and pricing data), access to fundamental data (where can I get data from the last ten years?) and difficulty in combining both datasets.
This will give a brief overview for technical traders on the most important fundamental data, where to get data, and, most importantly, how to incorporate it into your strategy.<Deleted>
Fundamental analysis in the fx market is very similar to equities, namely, traders try asses the real value of a company, except they are evaluating an entire country, or two. They are looking to measure the strength of a country’s economy, reflected by the price of its currency, as compared to other countries.
This is usually referred to as the “strength” or “weakness” of a currency. A “strong” currency is one with a relatively high value while a “weak” currency has a relatively low value. For example, the AUD/USD has a weaker Australian dollar that only buys around $0.71 of the stronger US Dollar, whereas the GBP/USD has a stronger Great British Pound that buys $1.54 of the weaker US Dollar.
So what determines the strength or weakness of a currency? It is largely driven by a combination of the internal policies of the central banks of each country<Deleted>, the natural market forces of international trade, and institutional order flow (the importance of each factor is a matter of some very passionate debates and usually determined by your own personal view of the world).
The fundamental data you choose to incorporate is going to be dependent on the currencies you trade as well as the factors you believe are important. There are a few that are generally seen as more important.<Deleted>
Now that you have all this data, how do you actually use it? Most of this data in daily, monthly, or evenly quarterly, where your strategy could be on 4-hour charts, and you have no easy way to code this into an automated strategy.
Luckily, there are a couple techniques that can be used to relatively easily incorporate fundamental data into your technical strategy.
Implementing a Bias
Building a Fully Fundamental Strategy
Combining Technical and Fundamental Entry Signals
Not including both technical and fundamental data into your strategy is limiting yourself to just one perspective of the market. You should be using all the relevant information you can get your hands on to give yourself an edge.