What is Fundamental Analysis

Whether or not you've traded before, you probably know that the value of a market can change in response to news, interest rate changes, government decisions and other events. As you watch the charts, you'll notice that events and news on a particular country's or region's economy can cause markets to shoot up or down dramatically.

Fundamental analysis traders track these political, social and economic forces to forecast whether the value of a currency will go up or down.

Many new traders will develop their fundamental analysis skills by following news events and tracking scheduled economic announcements. But there will be times when the price movement of a market won't behave as your fundamental analysis may indicate. That's where it becomes important to incorporate technical analysis into your strategy as well.


As you begin to follow economic announcements, you may understand why some events—like the consumer price index—may cause markets to move. But you may wonder why it's important to follow lesser events, like the food price index. Usually, a major event provides an indication of the state of the economy. But traders follow lesser events because they provide an indication of upcoming major announcements. For example, a jump in food prices may mean the consumer price index will jump as well.

Price Channels
Example contributed by GFT