What The Hell Is Fundamental Analysis?
When a new trader enters a financial market, the first thing they start with is analysis. There are different ways to analyze markets and financial instruments. Fundamental and technical analysis are the most common methods but what is fundamental analysis? How can it be used in various financial markets or trading markets?
To answer all these questions for you, we are here with this informational post. Here you will get all the details about fundamental analysis and its importance.
From stock traders to forex traders, you can see that every trader is using fundamental analysis. Along with the basic data about fundamentals, we will provide advanced information also. You will get all the questions answered related to fundamental analysis.
Know The Basics of Fundamental Analysis
Without confusing yourself, you need to start with the basics as the basics of fundamental analysis are important to learn. If you start working with fundamental analysis and make strategies, then you will get confused. So to make things clear for your mind, you need to go from basics to advanced level.
After knowing the basics, you can apply the analysis to any market such as the forex market or stock market. No matter if you are linked with forex trading or stock trading, you can use this exciting feature.
What Is Fundamental Analysis?
Fundamental analysis is a type of analysis for a particular asset. These assets can be stocks, currency pairs or anything else available for trading. In this analysis, we use properties of assets and their company details to figure out various forecasts.
We try to find out what will be the future of that particular asset in online trading. It helps a trader to make decisions in an accurate way to make more profit.
Why Is It Used?
As its basic definition makes it clear that traders use it to analyze the fundamentals of an asset to figure out the trend, price forecasts, more.
After that, they make decisions on the basis of such price forecasts, trends and predictions about price fluctuations. You can perform fundamental analysis on almost any trading platform. You can trade forex after analyzing currencies with the help of fundamental analysis.
Importance of Fundamental Analysis
The fundamental analysis becomes a vital part of trading after a trader starts using it. You can make your strategy more beneficial with the help of fundamental analysis.
Even assets like high liquidity such as currency pairs and commodities can also be traded using fundamental analysis. Fundamental analysis is a little bit easier than its counterparts. Because it makes it possible for beginners to analyze even typical assets.
Fundamental Analysis Vs Technical Analysis
If we are talking about fundamental analysis, then it becomes important to talk about technical analysis too. You must have to talk about this topic because it is the most discussed topic on the internet.
A major group of traders claims that technical analysis is easy and effective. While another group of traders claims that this analysis is better than technical analysis. But, you can learn how to trade with both strategies.
If we have a look at the actual difference, then the major difference is the source of information used. Technical analysis uses historical data of an asset or the market to analyze things. But fundamental analysis uses properties, features and the current situation of an asset.
Traders use technical analysis for currency trading, stock trading and even crypto trading. Fundamental analysis is only limited to some of the trading markets such as the currency & stock markets.
Which One Is Better?
Now the question is which one is better, fundamental analysis or technical analysis? This question cannot be answered in a single sentence. Because for some traders technical indicators and trading signals provided in TA are better. But for some traders, charting becomes a lot easier in fundamental analysis.
We cannot compare both strategies because they provide different results for different traders. Both methods have their own applications and use cases. But, most beginners do start with FA as it’s more generic to begin the analysis.
Pros & Cons
Knowing the advantages and disadvantages of fundamental analysis is important for all. Because there is no meaning to have a look at one side of the story only. Fundamental analysis has many disadvantages along with advantages. There are reasons like its source of data, trading software, more.
Fundamental analysis uses online forex news in the analysis process for forex trading. So the news is not a reliable source for retail forex trading accounts. Following are some of the pros and cons of fundamental analysis that you need to know.
Before you start a live account with a trading plan including fundamental analysis, must read these pros of it. Following are some of the pros that every trader should know.
No Biased Results
Due to algorithmic trading or automated trading, there are no chances of biased results. Fundamental analysis will never provide biased results to retail traders.
Easy To Conduct
No matter if you are a beginner trader. Still, you can conduct fundamental analysis. But, you need some basic knowledge of it and how it works. There are many free resources to learn the basics of this strategy.
Less Experience Required
You don't need much experience to start with fundamental as compared to technical. You can start as a beginner level trader.
Accurate Value Of Assets
Rather than giving entry & exit points, the fundamental gives you accurate assets value.
Suitable For Long Term
Fundamental analysis is considered good for long term trading. So if you are a long term trader and you have patience, then you can make a profit out of it.
Along with the pros, there are some disadvantages of fundamental analysis too. Following are these disadvantages.
Takes More Time
Fundamental analysis consumes more time as compared to technical analysis. So you need to be patient if you are choosing fundamental analysis. It happens because you take many aspects to reach a decision.
Not For Short Term
As an intraday trader or short term trader, you cannot get many benefits through it. But, some short-term traders still use it. They used to gather data to foresee the performance.
Not Suitable For Entry/Exit Points
Fundamental analysis is good to get the current value of an asset. But it cannot be used to determine entry and exit points. Technical analysis is preferred more than fundamental to get entry or exit points.
Fundamental analysis is conducted to get more data about an asset on the basis of its current state. Social, political and economic factors and the news is used to figure out the trends.
There are no technical indicators and historical data is used to get trading signals. Fundamental analysis is a bit easier and convenient as compared to technical analysis.
If you want to get more insights about stocks, then start using the combination of both methods. Fundamental will give you a broader perspective. And technical analysis will give you accurate movement details.
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