How to Follow Fundamental Analysis for Day Trading

There are as many ways to forecast market predictions as there are traders. Some use obscure mathematical models, while others use intuition or even astrology. One of the most sound methods for analyzing the market, however, is the fundamental analysis approach, which uses a number of variables to determine the health of a company and, hence, its stock.

Difficulty: Moderate

Instructions

Things You'll Need:

• Software that gives you complete financial data on a company

1. Appreciate fundamental analysis' basic difference from other systems. There are many methods of day trading stocks, from news playing (making fast, short purchases on stocks in reaction to breaking news) to swing trading (holding stocks for a few weeks to play oscillations in prices). However, fundamental analysis differs from other styles in that you look at a company's underlying financial strengths when determining what to buy.

2. Follow the company's developments, as you would in news playing, but reflect and act on how the news affects the company's worth, not on how it affects trader psychology on an hour-to-hour basis.

3. Learn to read a company's balance sheets. If you want to follow a fundamental analysis approach, you'll need more than just superficial charts that follow a company's stock price.

4. Determine the "fair value" of a stock by weighing the company's recent performance, current news stories about that company or even developments in the industry, sales, profits and other salient financial data.

5. Hold these stocks, if you choose, for terms much longer than a day. Since the fundamental analysis approach is one of investing (long-term support of a company) rather than day trading (playing the market feeling to make a fast profit), you can hold for a day, months or even years without undermining the value of your portfolio.

Tips & Warnings

• It is more difficult to make day trading profits using fundamental analysis than it is using other day trading theories, since the underlying value of a company isn't necessarily reflected in hourly and daily peaks and dips in stock price. However, some traders appreciate that they aren't simply buying into "empty" stocks but are making an investment in a company they believe in, even if only for a short while.
• As with any other market predictor, fundamental analysis is not a guarantee of profitable trading. There are so many variables throughout the world that can affect the price of a stock, including breaking news and unforeseen legislation. Don't count on a windfall.

Resources

• Fundamental analysis tutorial at Fund Library

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[TheTradersCoach]

on 10/24/2008 Not to step on your artlcle about fundamentals, I just want to point out that day traders care less about company fundamentals in general to make money trading stocks, or while trading any other financial instrument, on a day trading basis.

Day traders, winning day traders anyway, are in stock for minutes, certainly not holding after the market closes, and have little to no time to fool around researching fundamental data - they are trading based 100% on technical analysis and their experience with price movements short term.

Now, investors, holding stocks for days, weeks, months, or longer, fundamental analysis can be quite valuable, as you have written.

Just wanted to make this distinction for day trading so want-to-be day traders don't get led astray.

Good luck with your trading,

John McLaughlin, Stock Trading - Consultant / Coach / Mentor

www.DayTradersWin.com
www.