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Introduction to Fundamental Analysis



The foregoing is, at most, a brief and incomplete discussion of a complex topic. Fundamental analysis involves studying supply and demand, and seeking to understand how these basic market forces are at work in the market of interest. By performing some straightforward calculations involving carryover stocks, production, and consumption, the trader can determine an estimated stocks-to-use ratio for most commodities. Comparing the projected ratios with those of years past can help the trader develop an outlook for price direction and may even provide clues as to the extent to which prices might be expected to move. This type of fundamental analysis represents (along with technical analysis) one of the two primary methods by which futures traders develop opinions with respect to market direction and target prices.

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