Fundamental Analysis

Fundamental analysis

Fundamental analysis refers to the study of market fundamentals in order to predict where the price of a certain asset is set to move. While technical analysis relies on past price movements and looking for trends, the goal of fundamental analysis is basically to pinpoint the reasons why a price is moving and what exactly affected its demand or supply.

In practice, it deals with many of the behind-the-scenes factors that can affect price – political, supply & demand, environmental factors – using them to determine the causes and possible directions of price movements. Currencies and export products of any specific country, and their supply/demand levels, are just as heavily influenced by political and social factors as they are by the usual market forces. This proves doubly true in the case of agricultural commodities, where weather plays a major role – a poor harvest can mean supply not reaching the demand, resulting in higher prices, whereas a surplus can easily mean the opposite.

While fundamental analysis implies a much deeper approach to a more specific market segment, and doesn’t allow much freedom in monitoring multiple markets, as is the case with technical analysis, it is a powerful tool to use not only to increase profitability, but also a great way to learn more about how the market operates and why prices move the way they do. Ideally, a combination of both kinds of analysis is the best approach, as each type focuses on different, yet essential, aspects of price movements.