Introduction
There are two main approaches used to analyze and decide when to buy or sell in the market. These methodologies are called technical analysis and fundamental analysis and each one is based on radically different principles. In this section, we are going to discuss mainly about technical analysis but at the same time, we are going to present an introduction to fundamental analysis to explain this approach to visitors.
Fundamental analysis
In the Forex market, the fundamental analysis examines in depth the political, social, or economic events and how and why these events have historically affected the prices of currencies. So its main purpose is to understand the current state and likely evolution of the price action according to the socioeconomic circumstances that are currently being developed or in the process to be developed.
In the case of stock market analysis, for example, the fundamental analysis examines the financial reports published by the company, audits, quarterly and annual balance sheets, market trends, product quality, dividends, sales, position against competitors, news, etc… Ultimately this determines whether the stock price is below, above, or matches the price at which such share is quoted at the time. If, for example, the result of the fundamental analysis shows that the share price should be higher than what is listed at that time, the recommendation is to buy it and wait for the market’s true value.
In the case of the Forex market, fundamental analysis studies the economic, political, social, and even weather events that can affect the exchange rates of the currencies mainly in the long term.
