Fundamental Analysis

A Fundamental Trader trades only on Fundamental information. Fundamental information is specific news and information that relates to the underlying financial instrument that is likely to move prices now or in the future.

So for example if you are analyzing a currency the fundamental information would include:

  • The interest rate on that currency;
  • The political climate in that country;
  • The international capital flows into and out of that country for example imports and exports;
  • The economic landscape in that country including Gross Domestic Product (GDP), Growth prospects, unemployment, the saving habits of the citizens;
  • The indebtedness of that country;
  • And so on…
And for example if you are analyzing a stock, the fundamental information would include:
  • The company’s debt;
  • The company’s PE Ratio;
  • The company’s past growth in revenue and earnings;
  • The company’s dividend policy;
  • The company’s products;
  • The company’s markets;
  • Legislation that affects that company;
  • The state of the industry;
  • The company’s management;
  • The part of the business cycle the company is in.
  • And so on…
And for example if you are analyzing an agricultural commodity, the fundamental information would include:
  • The countries that crop is grown in;
  • Political situations in those countries;
  • Legislative (e.g. tax) issues in those countries;
  • Seasonal factors;
  • Planting and harvesting statistics;
  • Important weather factors (e.g. hurricane season for Orange Juice);
  • Specific international supply and demand for the commodity;
  • The prospects for the price of the US Dollar (almost all commodities are priced in US Dollars);
  • Global growth and therefore consumption of the commodity;
  • And so on…

In my opinion there are only a very few economic analytical geniuses who can hope to master fundamental analysis well enough to really make a fortune. Of these I include Warren Buffett, George Soros and Jim Rogers (who started the Quantum Fund with George Soros).

This is the reason there are so many trend traders, and traders who use primarily price information to make their trading and investment decisions.

It is my belief that no-one can know every factor that moves market prices, in fact nowhere near every factor. But whatever forces are at work buying and selling, will by definition show up in the price.

To read more on this see:

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