Fundamental analysis illustrates that many tools and techniques are available for fundamental analysis, but they can be divided into two categories: top-down analysis and bottom-up analysis.
Top-down analysis starts with the market as a whole and then Narrows down to specific sectors, industries or companies to get a broader picture of the economy.
It uses a combination of factors as a basis for decision making.
A top-down approach aims to identify the big picture and all its components, which are often the driving forces for achieving the main goal.
Bottom-up analysis, on the other hand, takes a completely different approach.
It starts with a particular stock and then expands to consider all the factors that affect its price.
Typically, bottom-up approaches focus their analysis on the specific characteristics of individual assets and their valuation compared to the market.
The fundamental analysis tools a trader may choose vary depending on the asset being evaluated.
For example, stock traders can choose to look at the data in a company’s earnings report, focusing on margins, estimated growth rates, earnings per share (EPS) and revenue.
Traders can choose to assess official data for insight into a country’s economic health.
Economic indicators are reports issued by governments or private organizations that show how a country’s economy is doing.
This is an official way to measure the health of an economy, but keep in mind that many factors and policies also affect a country’s economic performance.