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Introduction to Fundamental AnalysisFor any serious trader or investor that wants to make profit, fundamental analysis is an integral part of investing. It is the method of calculating the price valuation of an asset and the trends within a market by analyzing, within a business cycle framework, governmental policies, present economic conditions and societal elements. A trader, especially a Forex trader, can gage the economic condition of a country by looking at certain macroeconomic indicators, including:Balance of Trade – Deficit or Surplus Governmental Monetary and Fiscal Policies GDP – Gross Domestic Product CPI – Consumer Price Index (This is used for inflation) Interest Rate notifications Spending Indicators Consumer Confidence and Retail Trade Employment/Unemployment Indicators Advantages and Disadvantages of Fundamental Analysis
Fundamental Analysis provides traders with a broad yet detailed analysis of all the factors determining an investment’s actual value. It can be used to predict medium and long term opportunities in investment and is a very useful tool when used in conjunction with Technical Analysis to obtain the intrinsic value of an investment.
For the novice trader, there are a lot of macroeconomic indicators to study and this may end up causing more confusion than clarity. The accuracy and relevance does come into question as there are many external factors that cannot be legislated for every macroeconomic indicator in an investment equation. To learn more about the various indicators in fundamental analysis and how they affect the markets; please visit the economic indicators page. For further study of Forex and CFD trading, please visit our education page |
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