Fundamental Analysis is a method of market analysis employed by traders and market participants in order to understand current market movements, calculate future price direction and invest accordingly.
Fundamental analysis differs from technical analysis in that, instead of looking at the historical performance of an asset to determine future performance, it focuses mainly on external factors that have the power to influence the market. Thus, fundamental analysts consider economic, geopolitical and social phenomena, which they study in order to understand the overall state of the economy and see if and how these may affect the price of an asset.
Like technical analysis, fundamental analysis is an ongoing process. It requires that you follow news reports and keep up with major announcements and economic data releases, while it also entails being aware of any developments that may affect a country’s economy. After all, the purpose of fundamental analysis is to determine the future condition of a country’s economy and, in consequence, the future value of its currency in relation to other currencies.
What news stories or data announcements should you, as a trader, pay attention to? In this section we will look at the various factors that have the ability to affect the state of a country’s economy and, in turn, the value of its currency, to see how you can adapt your trading strategy accordingly and benefit from market movements.