What is Fundamental Analysis?
Fundamental analysis is a method of measuring a share/currency’s intrinsic value – it refers to its fundamental value without referring to its market value. Factors affecting the security’s value at both a macro- and micro-economic level would be:
MACRO ECONOMIC FACTORS
Include economic, social and political influences. They are presented at government level and affects a country as a whole.
Economic factors: Economic growth (GDP/CPI/PPI), unemployment rates, exchange rates, inflation rates, interest rates.
Social Factors: Cultural views, health (viruses), population growth rate, age distribution
Political Factors: How a government intervenes in an economy eg Tax policy, labour law, government shutdowns, trade restrictions, tariffs.
MICRO ECONOMIC FACTORS
Include the factors that affect almost any business.
- impact of customers
- availability of employees
- availability of suppliers
- distribution channels and suppliers
- level of competition between businesses
- the effectiveness of the company’s management
- financial statements
The aim is to arrive at a number that an investor can compare with a security/currency’s current price in order to see whether the security is undervalued or overvalued.
Fundamental Analysis (FA) is a method of measuring a security’s intrinsic value by examining related economic and financial factors, put another way,
Fundamental Analysis is a Global conversation that propagates foundational pillars about different countries, their political, economical and social environments which serves investors with information that gives results that lead to profit and potential losses.
As a Retail Trader, analysing potential technical setups, you have to consider the Impact fundamental analysis can have because successful traders understand that fundamental analysis can have short, medium and long term impact on the market you choose to trade.
Lastly, think of fundamental analysis as a tool that shows you the heartbeat of the above-mentioned, the weaker the heartbeat, the less likely you are to survive and the stronger the heartbeat, the degree of probability increases in your favour.