Fundamental analysis is the study of the overall state of the economy, interest rates, production, earnings and policy changes. The fundamental approach examines all of the relevant factors affecting the price of a market in order to determine the intrinsic value of the market which is reflected in the national currency. Fundamentalists believe that prices do not accurately reflect all available information and look to capitalize on perceived price discrepancies. If the intrinsic value is under the current market price, the market is overpriced and should be sold. If the market price is below the intrinsic value, then the market is undervalued and should be bought. Calculation of the intrinsic value is subjective and would vary from person to person depending on the emphasis they lay on a particular fundamental (e.g interest rate over production).
For a list of fundamental indicators that a trader will generally monitor, please click here.
