BASIC PRINCIPLES

Fundamental analysis can take one of two approaches: a top-down approach or a bottom-up approach. In a top-down approach the trader starts by looking at the global market as a whole, analyzing macroeconomic events to see where the market is being most impacted. The trader then focuses on an asset class, such as Forex, to study the fundamental events targeting it and find a specific asset that is experiencing movement and thus offering trading opportunities.

In binary option trading many people choose to pursue a bottom-up approach instead, as it lends itself to a smaller set of assets for which contracts are available. Using a bottom-up approach, the binary option trader chooses a specific asset he is interested in, such as gold or an individual stock, and then analyzes only those fundamental data points that are likely to be impacting that asset.

Fundamental analysis may also focus on macroeconomic factors or on microeconomic factors, depending on what class of asset is being analyzed. Forex pairs and commodities, for example, are most impacted by macroeconomic fundamentals, so this is where the bulk of analysis will take place. Stocks, on the other hand, are influenced most strongly by microeconomic fundamentals, although they may experience bias in one direction or another based on the overall movement of the market as a result of macroeconomic events.

In many cases, one class of asset will influence another, creating a situation where a broad range of fundamentals must be understood to predict movement. For example, many commodities have an inverse relationship to the strength of the US Dollar, creating a situation where to predict commodity prices the binary option trader must look not only at fundamental data related to the commodity itself, but also to fundamentals that may influence the US Dollar.