Technical Analysis v. Fundamental Analysis

Fundamental Analysis is based on the study of factors external to the trading markets which affect the supply and demand of a particular market. It is in stark contrast to technical analysis since it focuses, not on price but on factors like weather, government policies, domestic and foreign political and economic events and changing trade prospects. Fundamental analysis theorizes that by monitoring relevant supply and demand factors for a particular market, a state of current or potential disequilibrium of market conditions may be identified before the state has been reflected in the price level of that market. Fundamental analysis assumes that markets are imperfect, that information is not instantaneously assimilated or disseminated and that econometric models can be constructed to generate equilibrium prices, which may indicate that current prices are inconsistent with underlying economic conditions, and will, accordingly, change in the future.

Another definition of Fundamental Analysis:

Fundamental Analysis is an approach to analyzing market behavior that stresses the study of underlying factors of supply and demand. It is done in the belief that such analysis will enable one to profit by being able to anticipate price trends. A Fundamentalist is a market observer-and/or participant who relies principally on Supply/demand considerations in price forecasting. Components of Fundamental Analysis: