Analysis

FUNDAMENTAL ANALYSIS

Fundamental analysis is a set of methods for assessing macroeconomic, financial, and industry indicators, which make it possible to assess the current state of the issuer, the industry, or the market as a whole and predict the further development of the situation.

According to the method of fundamental analysis, the market situation changes under the influence of various factors: geopolitical, social, economic, natural, and others. When analyzing the market, a trader takes into account data that has an obvious impact. For traders trading in shares, the main sources of information are the issuer’s financial statements – balance sheet, profit, and loss statement, cash flow statement, corporate news – messages about a change in management, about a takeover or merger of companies, about the issue or redemption of securities; as well as data of macroeconomic statistics published by the relevant agencies and government institutions.

The main sources of data for fundamental analysis:

  • Financial analytics and news.
  • Dynamics of rates of the Central Banks.
  • Economic calendars.
  • Financial and accounting reports of companies.
  • Macroeconomic indicators.

The most important macroeconomic indicators include:

  • Decision of the Central Banks on the interest rate.
  • Non-Farm Payrolls (NFP).
  • Unemployment rate.
  • Consumer price index.
  • Gross Domestic Product (GDP).
  • Industrial production volumes.
  • The state of the trade balance, the degree of dependence on external sources of raw materials.
  • Speculative operations in the foreign exchange market.
  • Interest rates.
  • The growth of the money supply in the world’s markets.

While conducting an analysis, it should be kept in mind that the same factors can have a different degree of influence in different markets at a specific period. Factors that are insignificant in one market can be decisive in another.

Fundamental analysis considers 3 options for the market reaction to a certain event:

  • The fact coincides with the forecast — the price dynamics practically does not change. In this case, they say: “The market has worked out” (this result).
  • The market forecast does not match the fact due to a specific event, that is, the market simply underestimated this factor. Then the price will continue the current dynamics with acceleration or decrease at the time of the event.
  • The forecast turned out to be completely wrong. A sharp reversal of the rate is expected, possibly after a certain period of preliminary “assessment” by the market.

ANALYSIS RESULTS

A trader can get a detailed overall picture of the state of the market and individual assets by studying reports on important macroeconomic indicators. Thus, it is possible to forecast the development of economic events with high accuracy. In the analysis of statistical data on the above indicators, it is important to understand their meaning, as well as the weight and strength of the influence of one on the other.

TECHNICAL ANALYSIS

Technical analysis is a set of tools and methods by which a trader assumes further movement of the price of an asset, based solely on previous data on the price dynamics of this asset. Technical analysis is used on almost any trading platform where trading activity is quite high.

Technical analysis techniques are based on 3 basic rules:

  • The movement of the quotation chart has already taken into account various factors affecting price changes. Therefore, it makes no sense to separately study the dependence of prices on political or economic news.
  • Price changes do not occur randomly but are influenced by some trends. That is, by dividing the chart into time intervals, you can see the price change in one direction.
  • The cyclical nature of the market. When certain situations arise, the reaction of market participants is always the same. Therefore, when they reappear, similar graphic patterns appear on the chart, by recognizing these patterns you can predict further price movement.

To assess information, technical analysis of the stock market has several techniques. They are based on mathematical calculations (indicators) and graphical drawings (figures).

Technical analysis is usually used by traders who make money on asset price changes. Traders need this to increase the chances of a successful trade.

For long-term investors, both technical and fundamental analyses are needed.