Market analysis and insight are vital when it comes to determining when and which asset to trade. While the data is important, employing the type of market analysis is equally important as both technical and fundamental analyses have their share of advantages and benefits.
- The market price reflects everything.
- Price movements follow trends.
- History will repeat itself.
Fundamental analysis evaluates an asset’s value by examining related external data, such as economic, financial and other qualitative and quantitative factors. It takes a long-term approach in analysing the market, whereby it assumes that the short-term market is wrong and that the market price will correct itself in the long run.
Fundamental analysis is more commonly used by long-term traders as it helps them to select assets that will increase in value over time. The end goal of this analysis is to produce a quantitative value that a trader can compare with the asset’s current price, indicating whether the asset is undervalued or overvalued.