Watch daily commentary and make informed trading decisions
Watch daily commentary and make informed trading decisions
Fundamental analysis (FA) is a type of trading analysis that relies on finding the intrinsic value of an asset. Fundamental traders believe that markets seldom reflect the true price of an instrument, and that this true price can be found by analysing earnings, reports, releases, macroeconomic data, and more.
In essence, FA is about looking at the bigger picture and diving deep. As such, fundamental traders often prefer mid-to-long-term strategies like swing trading and position trading.
Fundamental analysis places an emphasis on inspecting markets rather than actively trading. A fundamental trader will thoroughly investigate any instrument they trade and try to understand the factors that make it move, its history, and how it works in specific conditions. The favoured tools and sources for fundamental traders differ depending on their preferred asset class.
Fundamental analysis places an emphasis on inspecting markets rather than actively trading. A fundamental trader will thoroughly investigate any instrument they trade and try to understand the factors that make it move, its history, and how it works in specific conditions.
The favoured tools and sources for fundamental traders differ depending on their preferred asset class.
In forex, fundamental traders use:
Intrinsic Value
The intrinsic value of something is the true value of an instrument, determined by its performance within a wider economic context. This includes its performance compared to competing and similar assets. The intrinsic value doesn't need to be an exact number, just an approximation of whether the instrument is undervalued or overvalued.
News
Economic and political news can change the price of an asset rather quickly. As such, fundamental traders keep a close eye on the news cycle to identify any events that may affect their prior analysis and change their prediction regarding an instrument's intrinsic value.
Policy and Global Events
Some of the most influential releases for fundamental analysis are policy changes, major political events, conflict, and geopolitical tension. Announcements from officials, elections, changes to monetary and economic policy, war, and supply line disruptions cause major shifts in prices. In such cases, fundamental traders need to be quick to re-evaluate their positions.
Industry and Sector Trends
No asset exists in isolation. Fundamental analysts need to understand the direction of the countries, industries, and sectors their assets are a part of. Unlike technical analysis, this doesn't refer to flash-in-the-pan price trends, but rather long-term orientation.
All trading involves risk. It is possible to lose all your capital.
All trading involves risk.
It is possible to lose all your capital.
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