Fundamental Analysis

What is Fundamental Analysis?

Fundamental analysis looks at the causes of market movements, from weather, to political upheaval or government monetary policy.  It allows traders to predict the direction of a financial instrument, based on current political, social, economic and environmental factors.  The theory behind fundamental analysis is that each instrument has an intrinsic worth and tends to move towards this ‘real’ value.

Major Market Indicators

Market indicators are regularly published reports that reflect the health of an economy. Market indicators focus on a variety of financial sectors and they can impact the value of an instrument, if the report results are better, or worse than anticipated.  For example, the Jobless Claims Report can have a powerful influence on the value of the US dollar, if the results exceed, or fall short of expectations.

Additional examples of market indicators include the Retail Price Index, Interest Rate Report, Gross Domestic Product (GDP), the Consumer Confidence Index, and New Home Sales.

The Benefits of Fundamental Analysis

 Fundamental analysis rewards an in- depth knowledge of a specific market or instrument and is valuable in the establishment of long term investments.

 Fundamental traders can time their trading with precision, and anticipate potentially market shaping events by following the publication of major economic announcements.

 Using fundamental analysis which examines the causes of market shifts, in conjunction with technical analysis, which explores the effects of those shifts, can serve as the basis for a  remarkably effective combined trading strategy.