Fundamental analysis requires, among other things, a close examination of the Forex in order to determine its current financial strength, future growth and profitability prospects, and current management skills, in order to estimate whether the currency price is undervalued or overvalued.
A good deal of reliance is placed on annual and quarterly earnings reports, the economic, political and competitive environment facing the country, as well as any current news currency or rumors relating to the economy. Simply put, fundamental analysis concerns itself with the «basics» of the business in assessing the worth of a currency. Fundamental analysis may be the preferred method to use for mid to longer term investors. However, it is not suitable for use by day traders because of the amount of research required, and the fact that trades are entered into and exited within a very short time frame.
At its broadest, Fundamental Analysis studies any data that might be expected to impact the price or perceived value of a currency, other than analyzing the trading patterns of that Forex itself.
Fundamentals include economic factors, industry-specific trends, capital market conditions, and company-specific data and qualities. Within fundamental analysis lie the equally broad concepts of quantitative analysis, where economic or company-specific numerical data are analyzed with computer software and other objective means, and qualitative analysis, which examine less tangible concepts such as technology strength and management effectiveness.
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