Fundamental analysts believe that economic, social, and political events influence the forex market. Unlike technical analysis, which involves looking at past data on charts, fundamental analysis focuses on news headlines, economic data reports, and other qualifying factors to predict price movements in the market. This is mostly relevant to stocks but can be used with other instruments. Here are some things that fundamental analysts look at:
- Economic calendars
- News headlines
- Unemployment records
- Interest rates
- Revenues, earnings, future growth, equity return on stocks
- The Overall state of the economy
- Supply & demand
As you can see, fundamental analysis is based on facts about a company or the economy. These different statistics can give one an idea of how the market is going to perform and whether to invest in a particular stock. The above examples can affect the economy for a country in different ways, for example, supply & demand can tell us whether the country has more imports or exports. Having more imports is not a good sign, as that means the country could go into debt.
This data is usually used to determine a stock value so that one can determine if it is overvalued. Analysts that look at these factors often publish this data for their followers as this gives one an idea of whether the stock has a higher chance of rising in value or falling in price. Where technical analysts study past price data, fundamental analysis is more focused on how current or future events and economic data will influence prices.
It’s important to know that fundamental analysis measures things in two different ways:
-Quantitative measurements can be measured or written in accurate numerical terms.
-Qualitative measurements are based more on characters, such as the size of a company or quantity.
Quantitative fundamentals are simply numbers and revolve around financial statements, revenue, profit, and other factors that can be expressed in accurate number readings. Qualitative measurements are more subjective. These could include brand-name recognition, the performance of a company’s executives, and other factors that cannot be measured as accurately. Most analysts take both types into consideration, rather than only focusing on one because both can tell us important information.
When considering a company, fundamentalists consider their business model, competitive advantages, management principles, and important figures, and their policies. All of these factors can influence the company’s chances of success and the price of their stocks.
If you’re interested in making decisions based on fundamentals, you’ll need to understand all of the driving factors that affect the economy and what influences decisions for companies. Be sure to do further research online to get into more detailed information about the things that fundamental analysts consider so that you can determine what you need to know before investing in an asset.