Fundamental analysis in general trading and in binary options trading is the evaluation of an asset (such as a forex pair, a commodity, a stock etc.) using information sources that indicate the condition of the asset, the market, the competitive landscape and other factors that influence the asset and its price rate. Fundamental analysis involves reading relevant financial news on the internet and in financial sections of common newspapers about the asset. Traders need to pay special attention to statements regarding the asset (such as SEC filing or Federal Open Market Committee (FOMC) statement) and what other traders write about the asset to get the anticipated price changes. The purpose of the reading and the research is to gain a wide perspective about the market and the asset, to learn about the asset’s past behavior and its current condition in order to predict its future behavior. In the fundamental analysis there are two strategies to conduct the analysis; top-down analysis and bottom-up analysis.
- Top-down analysis starts by reviewing the global market and from the global perspective to isolate the opportunities in specific markets (region or industry) and to a specific asset which stands out from other assets in the market. After the isolation of the specific asset, the trader reads and learns all the different aspects of the asset in order to determine its future trends and rate changes.
- Bottom-up analysis is focused on a single asset that the trader chooses regardless of the region or industry. In most cases the bottom-up analysis is performed because the trader knows the asset or feels close to it.
Fundamental analysis is usually considered a trivial and easy use that even beginner traders can use. The skills of the fundamental analysis always improve so experienced traders have better understanding which parts of the information are more important than others. We choose to cover only few items related to fundamental analysis in the binary options wiki and as you progress with fundamental analysis you find new information sources and methodologies.