How to Get Started with Fundamental Analysis

Your Guide to Reading the Market Beyond the Charts

Author: Paul Sanders, Financial Source, specially for Forex Tester Online.

 

Introduction: The Silent Engine Beneath the Market’s Surface

Most people enter trading the same way they’d enter a casino — drawn to the flashing lights of price action, hypnotized by the rhythm of candlesticks, and seduced by the illusion of control. They chase patterns, draw lines, tweak indicators, and pray for confluence. But over time — after enough chart patterns fail, after enough stop losses are hit — a question starts to surface: Why did that happen?

It’s at this point that a trader begins to shift. A subtle transformation starts. They no longer just want to know where the market moved. They want to know why.

That’s where fundamental analysis begins.

It’s the silent engine beneath the market’s surface. It’s not flashy. It doesn’t promise 90% win rates. But it tells the story — the real story — of what drives capital around the world. And if you learn to read that story, you gain an edge most traders never even know exists.

This guide is your on-ramp to that world, and believe it or not – you engage in fundamental analysis every single day. 

Disclaimer: “The views and strategies discussed below represent the author’s opinion based on market analysis. This content is for educational purposes and does not constitute financial advice.”

 

What Is Fundamental Analysis?

Fundamental analysis is the study of what makes a market move — not the price patterns it leaves behind, but the actual forces, decisions, and flows that determine where capital wants to go.

In its purest form, it’s the art of comparing value to price.

Think of it like this: if you walked into a store and saw a $1,200 iPhone marked down to $300, you’d know it was a good deal. If it were marked up to $2,500, you’d walk away. That’s a fundamental decision — you’re weighing value versus cost.

Markets work the same way.

Whether you’re evaluating a currency, a stock, or a bond, you’re trying to figure out: Is this fairly priced given what’s going on in the world? If it’s undervalued, you might buy. If it’s overvalued, you might short. That’s fundamental analysis.

 

Section 1: The Core Drivers — Growth and Inflation

At the heart of fundamental analysis are two macroeconomic juggernauts: growth and inflation. Nearly every asset reprice, every central bank decision, and every market correction traces back to one — or both — of these.

• Growth tells us how fast the economy is expanding. It affects corporate earnings, consumer confidence, employment, and fiscal health.
  
• Inflation tells us how fast prices are rising. It affects purchasing power, interest rates, and bond yields.

Why These Two Matter Most

Central banks — the world’s most powerful market participants — have dual mandates that revolve around growth and inflation. For instance, the Federal Reserve aims for stable inflation (~2%) and full employment. When inflation runs hot, they raise interest rates to cool it. When growth stalls, they cut rates to stimulate it.

The implications ripple everywhere. Currencies shift. Yields adjust. Equity valuations compress or expand. That’s why every fundamental analyst starts by asking.

👉 What does this event mean for growth or inflation?

 

Section 2: Understanding Market Expectations

Markets don’t move on reality — they move on the difference between expectations and outcomes. That’s why you’ll often see markets rally on “bad” news or fall on “good” data.

The key question is: What did the market expect — and what actually happened?

The Three-Step Framework:

1. Identify the Baseline:
   Use tools like consensus forecasts and market-implied rate probabilities to know what’s already priced in.
   
2. Spot the Surprise:
   Look for data or events that deviate from the baseline. Surprises are what shift sentiment.
   
3. Evaluate the Macro Impact:
   Does the surprise change central bank behavior? Shift capital flows? Reshape inflation expectations? That’s your edge.

For example, if CPI is forecasted at 3.1% and comes in at 3.1%, the market likely yawns. But if it prints 3.6%, now you’re talking: higher inflation risk → more hawkish Fed → stronger USD.

 

Section 3: Who Moves the Market?

The financial markets are a battleground of belief, fear, and capital — populated by a diverse ecosystem of participants. To anticipate flow, you must understand who’s in the game.

The Four Primary Players:

1. Central Banks
   Their words move markets as much as their actions. Understanding their goals, mandates, and biases is critical. A hawkish tone can rally a currency even without a rate hike.
   
2. Institutional Funds
   These include hedge funds, mutual funds, pension managers. They move billions and often drive multi-week trends. Tools like Commitment of Traders (COT) reports help track their positions.
   
3. Corporations & Sovereigns
   Corporate hedging and sovereign wealth fund flows influence currency and bond markets. For instance, if Japan repatriates U.S. Treasuries, expect USD/JPY to fall.
   
4. Retail Traders
   Though small individually, in aggregate retail traders can create short-term volatility. However, they rarely set the broader narrative.

Your job is not to outsmart these entities — it’s to align with their intentions. If you’re long GBP/USD while hedge funds are massively short and the Bank of England is dovish, you’re fighting the tide.

 

Section 4: Building Your Macro Awareness

The best fundamental traders are not just good analysts — they’re good readers of context.

Start with a Focused Calendar

Every week brings a blizzard of economic data, but not all data is created equal. Learn to focus on:

• High-impact events like CPI, NFP, GDP, rate decisions
  
• Forward-looking indicators like PMIs and consumer sentiment
  
• Market-sensitive themes (e.g., inflation during a tightening cycle)

Learn the Leading Indicators

Leading indicators give you a head start on turning points. Track:

• ISM Manufacturing & Services PMIs
  
• Durable Goods Orders
  
• Initial Jobless Claims
  
• OECD CLI Index
  
• Yield Curve (10y-2y)
  

If these begin to turn, markets usually follow — often before the headline media catches on.

 

Section 5: Relative Analysis — Especially in FX

Currencies are a relative game: you’re always comparing two economies. If you’re long GBP/USD, you’re betting that the UK’s outlook (growth, inflation, policy) is better than America’s.

What to Compare:

• Central Bank Trajectories
  
• Economic Surprises
  
• Yield Differentials
  
• Sentiment and Risk Appetite
  

Even if both economies are slowing, the one slowing less may see its currency appreciate.

 

Section 6: Use Intermarket Clues

Markets are interconnected. A move in one asset class often telegraphs moves in another.

• Falling oil? CAD and NOK may weaken.
  
• Rising yields? May support USD and pressure growth stocks.
  
• Copper rallying? Could signal growth optimism → AUD strength.
  

Train your mind to see the web — not just the thread. Strong intermarket alignment increases confidence in your trade.

 

Section 7: Macro Themes and Market Phases

Markets move in regimes. Knowing the dominant theme helps you filter noise and focus on relevant signals.

Common Market Regimes:

• Reflation: Rising growth and inflation (bullish equities, commodities)
  
• Disinflation: Slowing inflation with moderate growth (bullish bonds, tech)
  
• Stagflation: Weak growth, high inflation (bullish oil, bearish equities)
  
• Recession: Negative growth, falling inflation (bullish bonds, defensive stocks)

Identify which phase you’re in. Then ask: What trades typically perform here? That’s your opportunity zone.

 

Section 8: Mastering Central Bank Communication

Central banks don’t just move markets — they guide them. Their language is deliberate, measured, and filled with clues.

Key Things to Watch:

• Rate Statements & Pressers
  Look for changes in tone. “Monitoring conditions” is less hawkish than “ready to act.”
  
• Dot Plots & Projections
  These show where central banks see rates heading.
  
• Forward Guidance
  Is the bank open to cuts? Committed to hikes? The future path matters more than the current rate.
  
• Speeches & Testimonies
  Sometimes Powell says more in Q&A than in any official statement.

Learn their language. A single word change — like going from “transitory” to “persistent” — can move markets millions of pips.

 

Section 9: The Final Word — Fundamentals Are About Conviction

Technical setups are everywhere. But conviction? That’s rare.

Fundamental analysis gives you that conviction. When you understand why the market might move in your favor, you’re more likely to stay in the trade, manage risk rationally, and avoid emotional mistakes.

You don’t need to be an economist. You don’t need a Bloomberg terminal. What you need is curiosity, process, and repetition.

Here’s your new checklist:

 ✅ Does this data change the growth/inflation outlook?
✅ What did the market expect?
✅ How does this affect central bank behavior?
✅ What asset expresses this view cleanly?
✅ Am I trading with the broader narrative?

If you can answer those questions, you’re no longer a beginner. You’re a macro trader in the making.

 

Section 10: Four Concrete Ways to Extract Alpha from Fundamentals

There are hundreds of ways to generate alpha using fundamental analysis. Some rely on advanced quantitative models, machine learning, or proprietary capital flow data, but you don’t need to be a quant fund to benefit from fundamental analysis. 

Here are four of the easiest and most practical strategies for using fundamental analysis to gain a trading edge.

 

1. Economic Calendar Deviations

(How to Trade Growth and Inflation Shocks)

This is the classic way to apply macro fundamentals in real time: follow the economic calendar, track market expectations, and trade the surprise.

Every major data release — whether it’s CPI, NFP, GDP, or Retail Sales — feeds directly into the two pillars of macro analysis: growth and inflation. These are the variables central banks watch, and when the numbers surprise, the market re-prices quickly.

By understanding not just what the number is, but how it deviates from consensus and what it implies for the broader macro regime, you can build incredibly sharp directional trades with clear timing.

Sadly, retail economic calendars don’t give you the full range of expectations or a way to quickly know if you should get into a trade. 

You’ll need a professional economic calendar. Learn the exact strategy and get the calendar by clicking below. 

➡️ Read more: Trading Economic Data Surprises + Professional Economic Calendar Access

2. Interest Rate Tracker Insights

(What the Purest Market Is Telling You About Central Banks)

Interest rate markets — especially the Overnight Index Swaps (OIS) and Fed Funds Futures — offer the clearest view of where traders believe central banks are headed. They strip out noise and emotion, pricing rate expectations with precision.

1. Swing Trade Potential:
   Shifts in terminal rate pricing or the pace of cuts/hikes across the cycle reveal changing market conviction — perfect for positioning into macro-driven swings in currencies.
2. Intraday Trades:
   These tools update in real time, offering a live pulse on sentiment. As expectations adjust intra-session, they help front-run currency moves and get trade confirmation. 

➡️ Read more: How to find trades using an interest rate tracker

 

3. Positioning Analysis Secrets

(How to Track the Big Players — and Time the Trade)

Positioning reveals where hedge funds and institutions are already committed — and where they may be stretched or vulnerable. When combined with macro fundamentals, it gives you a clearer roadmap for swing trades.

Here are four ways we use it:

Secret #1: The Return % Distribution Insight
By studying how markets have historically behaved after similar positioning extremes, we can gauge what type of move is statistically likely. This keeps expectations realistic and trade planning grounded.

Secret #2: Monthly Performance Averages Tell Me How Much To Risk
Each asset has typical monthly behavior. When current positioning and performance exceed those norms, we know to either reduce risk — or prepare for a pullback.

Secret #3: How We Follow the Hedge Funds
Using COT data and open interest changes, we track when funds are adding size behind a macro theme. If we agree with the thesis, we ride with them. If they’re already overloaded, we prepare for a potential unwind.

Secret #4: How to Not Be Late to the Party
Early shifts in positioning often signal new trends before they fully emerge in price. This helps us enter early and avoid joining a move when it’s already crowded.

When positioning aligns with macro and sentiment, it becomes a powerful filter — showing not just where the trade is, but when it’s most likely to move.

➡️ Read more: Put it all together and Use Positioning Analysis to Find Swing Trades 

4. Option Market Entries and Exits

(Using Implied Volatility to Find Trade Levels with Precision)

One of the most powerful but overlooked tools in fundamental trading is the implied volatility landscape of the options market. This falls under the intermarket analysis. This is where we move beyond charts and headlines — and begin identifying exact price levels where large capital is positioned.

These implied volatility levels are quite accurate. 

➡️ Get the full strategy and how to find the exact levels