Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Fundamental Analysis”
Fundamental analysis is a method of forecasting the future price movements of a financial
instrument based on economic, political, environmental and other relevant factors and statistics
that will affect the basic supply and demand of whatever underlies the financial instrument.
In practice, many market players use technical analysis in conjunction with fundamental analysis
to determine their trading strategy. One major advantage of technical analysis
is that experienced analysts can follow many markets and market instruments, whereas the
fundamental analyst needs to know a particular market intimately.
Fundamental analysis focuses on what ought to happen in a market. Factors involved in
price analysis: Supply and demand, seasonal cycles, weather and government policy.
The fundamentalist studies the cause of market movement, while the technician studies the
effect. Fundamental analysis is a macro or strategic assessment of where a currency should
be trading based on any criteria but the movement of the currency’s price itself. These criteria
often include the economic condition of the country that the currency represents, monetary
policy, and other “fundamental” elements. Many profitable trades are made moments prior
to or shortly after major economic announcements.