What Is Fundamental Analysis?
There are two broad types of analysis we can do in the markets, technical analysis and fundamental analysis.
For the fundamental side of things, it’s all about determining the intrinsic value of an asset. Basically, you’re trying to evaluate if the markets have mispriced something, and if the price is likely to change in the future.
What Is Fundamental Analysis?
Fundamental analysis is a broad term, as there are thousands of different approaches to valuing something.
It could be looking at a company balance sheet, the industry conditions, market trends, or even assessing the overall economy and how that may impact the markets. Could even be something more niche you see coming that markets may have missed.
There are also many different indicators to help you determine the value of an asset, like earnings and debt for individual companies or inflation and economic growth for currencies.
However, there isn’t a one-size-fits-all approach to fundamentals. The approach and indicators you use will change depending on what you’re analysing. For example, if your focus is on major markets, such as currencies, the most relevant approaches and indicators are more geared towards the macroeconomy. You’ll find these indicators in economic calendars.
If you’re focused more on individual companies, then you’ll also want to look at things such as balance sheets, the specific sector that company operates in, and so on.
If you’re just getting started, I’d recommend following the releases in the economic calendar, and then following financial news. You’ll usually find the new reporting on these releases, and it’s a good way to get yourself familiar with them, and how the markets are reacting to them.
At first, you may not know what's important to read, but over time you will get better at filtering which articles are worth your time. If you mainly trade the big markets, such as FX, major indexes and major commodities, focus on the macro picture, the economies of the assets you follow.
As you become more familiar with what’s going on in the world, or whatever sector you’re focused on, you can begin to form your own opinions. If your opinion differs from the markets, then that could be an opportunity for you.