Last week, we explored the key ingredients of a high-probability trade setup. The main idea was simple: look for at least three confirmations that all align in the same direction at the same time. These confirmations could be technical, fundamental, or sentiment-based. Together, they make up the Three Pillars of Investment Analysis. But finding three strong signals at once isn’t always easy.
For example, in technical analysis, you might spot a support level and a chart reversal pattern but lack fundamental reasons to take a longer-term position.
Or maybe you see two technical signals but just read a news report that suggests the company is underperforming.
These mixed signals can leave you uncertain about whether to enter the trade. So, the goal is to align all three: technical, fundamental, and sentiment analysis.
When they point in the same direction, your chances of making a successful trade are much higher.
Let’s break down each pillar and how it can contribute to smarter trading decisions.
1. Technical analysis focuses on price action—what you see on a chart.
It’s like studying a map of where the market has been to guess where it might go next.
This ranges from simple concepts like support and resistance to more advanced tools like indicators and chart patterns.
The main goal is to find areas where prices might reverse, stall, or break out, giving you an edge in timing your trades.
One of the best things about technical analysis is that it helps you fine-tune your entry and exit points, keeping your losses small and your wins big.
For short-term trades like I make in Pattern Profit Alerts, it’s especially useful since you don’t need to dive deep into the company’s financials—you can simply focus on the price levels.
And while advanced tools can help, even basic techniques like identifying key support and resistance levels or drawing trendlines can provide excellent trade opportunities.
You can use platforms like TradingView, MetaTrader 5, or broker-specific tools to apply technical analysis. Whether you’re a beginner or an expert, this method works for both quick trades and as part of a larger strategy.
2. Fundamental analysis digs deeper into the “why” behind a market’s movements.
This type of analysis focuses on things like earnings, economic growth, interest rates, and inflation. It looks at a company’s financial health or the overall economy to understand what’s driving prices in the long run.
For instance, even if a chart shows resistance, a strong earnings report or positive economic news can push prices right through it.
Websites like Investing.com, Trading Economics, or Forex Factory provide key data releases, helping traders and investors make more informed decisions.
However, understanding how these factors interact can be time-consuming and complex. That’s why many retail traders rely on research reports from investment banks or financial analysts to simplify the process.
For long-term traders, fundamental analysis is essential. I use it to help identify the “big picture” trends and ensure that my pattern profit trades align with the underlying value of the asset.
3. Sentiment analysis is about understanding how people feel about the market.
It’s trickier than the other two because it’s based on psychology—how investors’ emotions influence their decisions. The market’s collective mood, or “sentiment,” can have a huge impact on prices, even if the fundamentals stay the same.
For example, you may have heard the saying, “The market is always right.” That’s because prices are determined by buyers and sellers acting on what they believe will happen. If most investors feel optimistic about a stock, prices tend to rise. If fear dominates, prices fall.
While harder to measure, sentiment analysis can be done by reading news reports, listening to podcasts, or following the tone of market discussions.
For example, the NASDAQ recently dropped 5% after the launch of DeepSeek, a competing AI model to OpenAI’s ChatGPT.
Although this didn’t affect the fundamentals of the companies involved, the market reacted negatively, and tech stocks like NVIDIA fell sharply.
Similarly, when Tencent faced rumours of military ties, shares in Naspers—who is a major Tencent investor—plummeted.
But because the fundamentals hadn’t changed, this negative sentiment created a buying opportunity after a technical confirmation.
This shows how understanding market sentiment can help you take advantage of short-term price swings.
How to combine these three pillars for trading success
While mastering technical, fundamental, and sentiment analysis takes time, combining all three is where the magic happens.
Technical analysis helps you time your trades and set targets, fundamental analysis ensures you’re trading in line with the long-term outlook, and sentiment analysis gives you an edge in understanding the market’s mood.
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