There is not a huge difference between a fundamental trader and a pure chart technician; both have refined their craft, and both will or will not make money on the ebbs and flows of the market's sentiment and cycles. Both will also very likely have a much better understanding of the other aspect of the market that they do not use than they would ever admit.
Some traders combine the two; they use the fundamental links that connect each global market to confirm the technical set-ups that are waiting for a near term instigator. Not all economics follow through as price action, and no chart set-up comes with a guarantee. Both will fail to follow through as expected at times, and both will do so to the same degree. The reason is that both are driven by the same thing; sentiment and reaction to what is happening in those forex related markets.
The volatility of a five minute chart comes from global ebbs and flows of the wheels of commerce turning, and understanding that a Fibonacci retracement on a five minute candle may or may not hold, but if it does follow through to create a trade that actually holds it will likely as a reaction to a news release, or more likely to the reversal or break-out of S&P futures trade. Keeping an eye on the global market fundamentals, and price action in inter-linked markets, is key to taming low time frame volatility.
Is there a negative in knowing that Treasury Yields help to move the swissy, or that euro had a 90% correlation to oil in 2008, or that the Jpy did not follow the S&P Futures from March 17th through until December? It is all tradable fundamental information that can only assist in understanding and learning the nuances of each pair. Secondary confirmation from an oil chart that the euro chart may move, or a Treasury chart that a swissy set-up is following in-line, is using fundamental market knowledge (the links between markets) to confirm the strength of the technical set-ups. It may not make or break the decision to trade, but can sometimes help in the amount of lots to take.
The fundamentalist will understand the likely future consequences of economic decisions (we do not however refer to fundamentalists as the news junkies who are looking for a media driven angle to play, or for a surge in momentum to double their account), whilst the technician will be plotting trend and price points as the likely consequence of those same economics. One looks for the direction, and one looks for the price points to be hit once that direction is in place.
Fundamentals drive direction and trend, technical’s reveal support and resistance areas that will likely get hit along the way. Take away the talking heads, take away the biased opinion, take away the sound-bites, take away the blaring headlines, and we are left with two things; direction (Fundamentals), and price points (Technical’s).
Charts are the reflection of market sentiment, and as they also house the price points to be hit once direction has been set they are obviously critical to a trader, you will be hard pressed to trade any market without a chart. Longevity however comes with an understanding of why the chart patterns sometimes fail, and why they follow through much better than was ever initially apparent in certain cases. In refining momey management the art of fundamental analysis from other markets is important.
It makes no difference as to whether we think the U.S. is in trouble, or that the ECB may not move rates, all that really matters is whether the chart set-up will follow through or not. Either way, if we know what the driver is we can add that to the law of probability for the next time that same set-up occurs,a nd adjust our exposure if a technical set-up is backed by funfamentals.
As traders we work with the law of probability in understanding that previous reactions to the same situation will produce the same results. As most pro traders will testify, we have to be prepared to take the opposite trade at times when fundamentals do not back the technical near-term view. That law of probability is not always as probable as one would always expect, but it does at least allow for a failing trade that had a mixed fundamental and technical view to do so with a limited exposure.