A fundamental analysis is all about getting an understanding of a company, the health of its business and its future prospects. It includes reading and analyzing annual reports and financial statements to get an understanding of the company’s comparative advantages, competitors and its market environment.
- Look at the earnings per share during the fundamental market analysis: This factor can help indicate the growth rate and profit ability of a company, which will allow you to predict more accurately the future of the company.
- Use technical analysis software to help you do the technical analysis faster and more efficiently: There are a number of software programs available that can help you compare and analyze stocks and the market according to the criteria you set.
- Stock chart analysis: This will help you understand the price pattern of the stock, so you can be more accurate in attempts to predict where the price will go, up or down. Understanding how and why to analyze the stock chart will help you find the winners in the market, and avoid those stocks that are falling in price.
- Fundamental trading: it can be profitable, but you must use caution that only stocks in the same industry are compared against each other. Comparing the fundamentals of two different stocks from different industries will not help you at all, because both stocks must be in the same industry for the comparison to be accurate.
- Look at the earnings history for at least the last three years whenever possible: Even companies that have only been public a short time should have this information from before the IPO was offered, when the company was private.
- Follow that Average Follow moving averages: Moving averages provide objective buy and sell signals. They tell you if the existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent.
- Learn the TurnsTrack oscillators: Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a market trend change, oscillators help warn us of markets that have rallied/ fallen too far and that may soon turn. Two of the most popular are the Relative Strength Index (RSI) and Stochastics. Find out more here: http://www.investopedia.com/university/fundamentalanalysis/
- Know the Warning SignsTrade MACD: The Moving Average Convergence Divergence (MACD) indicator combines a moving average crossover system with the overbought/oversold elements of an oscillator. A buy signal may be justified when the faster line crosses above the slower and both lines are below zero
- Trend or Not a TrendUse ADX: The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend
- Know the Confirming SignsVolume and open interest are important confirming indicators in futures markets: Volume precedes price. It is important to ensure that heavier volume is taking place in the direction of the prevailing trend. In an uptrend, heavier volume should be seen on up days.
Many investors fail to see the forest for the trees and lose perspective (and money) unnecessarily. The above listed rules should help investors steer a more focused path through the market’s vicissitudes.