Market Analysis FAQ
- What is the purpose of market analysis?
The two types of market analysis – fundamental and technical – provides important information about the price of an asset, and the condition of the sector or industry it is in. Fundamental market analysis focuses on economic data. That can be either macro data, such as GDP and employment reports, or microdata that is specific to one company such as the P/E or P/S ratios. Technical market analysis looks at the historical price action of an asset, seeking to identify patterns that can be used to locate potentially good entry and exits points for trades. So, at the end of the day the purpose of market analysis is to locate good trading opportunities.
- What is fundamental market analysis used for?
Fundamental analysis seeks to measure the intrinsic value of some asset, usually a stock, by examining its related financial or economic factors. The end goal is to arrive at some number, or series of numbers, which an investor can then compare with the current price of the asset to determine if it is overvalued, undervalued, or fairly valued. This information is then used to make decisions on whether to buy or sell an asset. Fundamental analysis is one of two ways that investors use to values assets, the other being technical analysis.
- What is technical market analysis used for?
Technical market analysis uses data such as the price data and trading volumes of assets to determine if they are currently overbought, oversold, or fairly valued. With technical analysis an investors tries to determine how the supply and demand of an asset affects its price, trading volumes, and liquidity. Where fundamental analysis is typically used to evaluate the long-term potential of an asset, and is most useful for investors, technical analysis can be used to generate short term trading signals that are more suitable for active traders.
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