The basis of fundamental analysis in trading

Previously we have learned to understand the basics in  technical  analysis in trading. Well, this time  we will discuss what  Fundamental Analysis is in  trading. Trading analysis strategies  are not carried out with one type of analysis alone.  Although each analysis has different data and information results, it does not  mean that one of the others is not important.   As a smart trader, you must understand and be able to combine the data and information provided from each type of analysis.   So that the  market analysis and predictions that you make become more accurate.

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In contrast to technical analysis,  fundamental analysis is based on factors that can affect an asset, such as economic conditions  ,  the  company's work (for stock assets),  poject performance  & number of transactions (for crypto),  political conditions, and so on.

Definition of Fundamental Analysis

In the sense of stock investing,   fundamental  analysis is a stock analysis technique that focuses on several factors.  Some of these factors  such as company performance,  business competition, industry,   macro or microeconomic conditions.  However, this does not mean that this analysis  cannot be used in other types of trading.  In Forex fundamental analysis is based on  the  economic, socio-political conditions of  a country and the many types of assets with different values  in the  money market.  While in the  cryptocurrency trading market fundamental analysis of crypto assets  is measured using the search for the intrinsic value of an asset.

By looking at a number of internal and external factors,  the main objective  is  to determine whether the asset or  business is  overvalued  or too low.   They can then leverage that information to enter or exit investment positions, strategically.  Thus the  main  objective of a fundamental  analysis is to  obtain price  considerations to compare with the  current  price of a security.   Thus, investors can assess whether the securities are overvalued or undervalued.

Objectives of Fundamental Analysis

The main purpose of a  fundamental  analysis is to  obtain price  considerations to compare with the  current  price of a security.    Thus, investors can assess whether the securities are overvalued or undervalued.  In addition,  another goal is to find out the  basic properties and  operational characteristics of a public company.  This method of  fundamental  analysis  is considered different from technical analysis, which estimates the  direction of prices through the  analysis of historical market data  such as price and volume.   All fundamental  analysis tries to determine whether a security is properly valued   in the broader  market.

Fundamental  analysis  is usually carried out from a macro to  micro perspective to identify securities that are not valued  correctly by the market.  Analysts usually study, overall,  the state of  the economy and  specific industry strengths before concentrating on  the performance of each company to arrive at a fair market value  for stocks.

Why is fundamental analysis important in trading?

Fundamental  analysis is a supporting tool for determining buy and sell decisions, which is commonly used by  investors with long  investment times. Swing and position  traders can also  combine it with technical analysis because their trading base  is not as  short as that  of day traders. Fundamental analysis provides a variety of information related to  economic conditions, politics, company performance  , and so on that is very useful in trading.  With this data, you  can get a conclusion on the assets  you  have and  what decisions you will make (buy, sell or hold).

 Pros  of  Fundamental Analysis

 Fundamental  analysis has the following advantages:

§  Making forecasts  for long-term  investments:  fundamental  analysis allows you to make forecasts about  macroeconomic factors,  policy indicators, demographics,   and  technological advances and    advances  consumers for the long term.

§    Potential determination: fundamental analysis helps identify promising stocks with great potential in  market security.

§   Business-oriented approach  :  fundamental  analysis helps to determine all the nuances and aspects of  enterprise and corporate work  in general.   That is,   you can identify possible bankruptcies,  promising trends in various industries  ,  groups of companies  that are at risk and growing and more  using   this method.

Of all the  advantages obtained,  fundamental  analysis can be  implied to provide  many possibilities from long-term forecasts  to the possibility of  evaluating several groups of companies at once.

Disadvantages of Fundamental Analysis

Not only advantages, an analysis must also  have weaknesses.  Before you  decide to do fundamental  analysis, you must first learn the following disadvantages  :

§    Fundamental   analysis as a whole takes longer, so it's  less of a  guy for a fast type of trading  like day  trading 

§   Price formation is  influenced by a large number of  factors, and it is very difficult for one investor to take everything into account.

§   An individual  approach to each analysis process.  Analysis methods  may differ depending on  the different specific aspects of each asset that  the  individual uses.  Adaptation of those methods can be very long and laborious.

§  A  subjective opinion.  Approximate values are based on assumptions.  Even the  slightest  change in coefficients and formulas can change the result.

§  The potential for  market manipulation and data in the presentation of information

§   Fair price calculation. So-called market makers sometimes  interfere  in pricing in the market,  and adherents of fundamental  analysis can be powerless, as  market  makers move prices to the  level they  need.

Conclusion

Fundamentals in  trading provide a huge advantage   in terms of the information provided  to a trader.   In addition to knowing the  global  reaction to an asset based on fundamental  factors,  you can also  rely on fundamental analysis in trading  investments over a long  period of  time. Despite the   shortcomings it has, investment cannot be made without fundamentalism.  That is why you  should not only look at one analysis  but also combine it with other types of analysis  such as technical analysis  and  market  sentiment   analysis.