• Fundamental Analysis
  • Macro Analysis
  • Effect on Markets

What is Fundamental Analysis

  • Fundamental analysis is the cornerstone of investing
  • It is the study of all the relevant factors that affect an economy, market or asset class in order to find its intrinsic (fair) value
  • Analysis of factors affecting the economy as a whole is known as macroeconomic analysis
  • Analysis of the factors affecting a specific company is known as microeconomic analysis

What is the Intrinsic Value

  • Fundamental analysis assumes that the price on the stock market does not fully reflect a stock’s “real” value
  • This “real” value is known as the stock intrinsic value 
  • The second assumption of fundamental analysis is that in the long run, the stock price will reflect the fundamentals
  • If this intrinsic value is above the current market price, then the asset is underpriced and should be bought
  • If the intrinsic value is below the current market price, then the asset is overpriced and should be sold

Macroeconomic Analysis

  • Macroeconomic analysis is used in the evaluation of currencies, bonds, commodities, and stock indices
  • At the macro level, analysis examines factors that affect the economy in its entirety
  • Interest rates, inflation, rate of growth, employment, politics, and national sentiment
  • This analysis will tell us if the economy is expanding or contracting or if its booming or in a slump


Economic and Business Cycle

  • From boom going into recession the economic growth will slow and we will witness a decrease in investments and production
  • From recession to slump inflation will drop and unemployment will rapidly increase
  • From slump to recovery interest rates will decrease and housing activity and spending will increase 
  • From recovery to boom we have growth, spending will increase, inflation will rise, and employment will reach its full capacity
  • Where we are in the cycle decides on which asset class we should invest in. e.g. in recession stocks go down and bonds up

Microeconomic Analysis

  • Microeconomic analysis is used in the evaluation of individual stocks or corporate bonds
  • The term refers to the analysis of the economic well-being of a  financial entity as opposed to only its price movements
  • Traders analyze the financial statements of a company in order to decide if its stock is a good investment
  • Is the company’s revenue growing? Is it making profits?
  • Can it repay its debts? What is the fair value of its stock?
  • In the long run, a stock’s price is driven by a company’s ability to grow sales and earnings but also the economic conditions
  • Interest rates
  • Inflation
  • Growth
  • Employment
  • Politics & Sentiment

Macroeconomic Analysis

  • Macroeconomic analysis is used in the evaluation of currencies, bonds, commodities, and stock indices
  • At the macro level, analysis examines factors that affect the economy in its entirety
  • Examples include: Interest rates, inflation, rate of growth, employment, politics, and national sentiment
  • This analysis will tell us if the economy is expanding or contracting or if its booming or in a slump

Macroeconomic Analysis – Interest Rates

  • The Interest rate is the cost of borrowing money – either by individuals, companies or even governments
  • If people and companies borrow less, they have less money to invest and to spend and vice versa
  • If interest rates go up this will result in more savings and less spending and eventually lead to a decrease in growth
  • If interest rates go down this will result in higher borrowing and higher spending and lead to an increase in growth
  • Central banks meet monthly to set interest rate levels and these meetings are closely followed by market traders

Interest Rates Effect on Markets

Macroeconomic Analysis – Inflation

  • Inflation is the increase in the prices of goods and services in the economy
  • When inflation increases more money is needed to purchase the same goods and services resulting in a decrease in growth
  • Consumer Price Index (CPI) measures inflation by measuring the changes in the price of a “market basket” of goods
  • The Producer Price Index (PPI) also measures inflation through the change in the production prices of goods and services
  • Inflation affects the economy directly as high inflation rates prompt central banks to increase interest rates

Inflation Effect on Markets

Macroeconomic Analysis – Growth

  • Growth measures the health of an economy through the increase in the goods and services produced
  • The Gross Domestic Product (GDP) which measures the value of all goods and services produced within a country
  • The International Trade Balance which measures the difference between imports and exports
  • Retail Sales measures growth through consumer expenditure and is used to access the direction of an economy

Growth Effect on Markets

Macroeconomic Analysis – Unemployment

  • One of the most important ingredients of a healthy economy is the availability of well paid jobs
  • When a person is actively searching for employment but is unable to find work, unemployment occurs
  • The unemployment rate is basically the percentage of people in the work force without jobs but are able and willing to work
  • Non-Farm Payroll measures employment through the number of additional non farming jobs that are added each month
  • An increase in unemployment (decrease in Non Farm payrolls) signals a slowdown in the economy

Unemployment Effect on Markets

Macroeconomic Analysis – Political Stability

  • Political risk is the risk that an investment’s return could suffer as a result of political changes or instability in a country
  • There are a variety of decisions governments make that can affect businesses, industries and the overall economy
  • These include nationalization, higher taxes, extra regulations, barriers to trade and many more
  • The decision of the UK to leave the EU, and the election of Trump, created more talk about political risk than before

Political Risk Effect on Markets

Macroeconomic Analysis – Sentiment

  • Sentiment is a psychological measure of how people feel about the economy in general or an asset class in particular
  • Sentiment can be a very powerful influence on the markets if people see a range of factors as being all positive or negative
  • Positive sentiment is referred to as bullish and negative sentiment is referred to as bearish
  • Purchasing Managers Index (PMI) and IFO (Institute for Economic Research) measures business managers sentiment
  • The Consumer Sentiment Index measures consumer’s opinion and feelings towards the financial health

Sentiment Effect on Markets

Macroeconomic Analysis – Conclusion

  • The above indicators provide us with a view on the current and future prospects of the economy
  • Changes in the above fundamentals will directly affect the valuation of currencies, bonds, commodities, and stocks
  • Market participants should keep a close eye on these fundamentals and use them to take informed trading decisions

The Story of Desmond Leong

Desmond is your average trader. He started off blowing up 7 (or more.. lost count) accounts amounting to more than 500k, tested over 30 Expert Advisors (EAs) to no success and spent over 10k on stupid useless courses.

Today he runs an award winning trading team and provides market analysis and webinars to some of the largest brokers such as IC Markets, XM, Axi, Tickmill, FXCM, VantageFX, easyMarkets and more.

He now has a simple goal: Creating an army of traders who trade profitably together and keep each other accountable. Guiding them with the most comprehensive no-BS free tutorials so that no one ever needs to go through the pain he went through himself to become a profitable trader.

My Trading Strategy


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Trading in foreign exchange (“Forex”) on margins entails high risk and is not suitable for all investors. Past performance is not an indication of future results. In this case, as well, the high degree of leverage can act both against you and for you. Before you decide to invest in foreign exchange, you should carefully assess your investment objectives, experience, financial possibilities and willingness to take risks. There is a possibility that you will lose your initial investment partially or completely. Therefore, you should not invest any funds that you cannot afford to completely lose in a worst-case scenario. You should also be aware of all the risks associated with foreign exchange trading and contact an independent financial advisor in case of doubt.

Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved and seek independent advice if necessary.

Leverage enables traders, using a relatively small amount of money, to take a position that is many times the initial investment. This leverage effect can work both in your favour and to your detriment. The Forex market opens up the possibility to utilize this leverage effect to a high degree; at the same time, however, it also opens up the risk of experiencing high losses. Please trade with caution when you use leverage in trading or investing. Your risk is particularly not limited to the initial investment, but can quickly fall into a negative range in the event of strong movements, meaning you may be obligated to pay far more than your initial wager.