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Fundamental Market Analysis Methods

Day traders rely heavily on analysis to inform them of the type of security to buy, the best time to buy a security, and the best time to sell a security.

Most of the analysis used by traders falls into two categories: fundamental analysis and technical analysis. Both forms of analysis rely on certain information that is available through news sources, investment charts or other analytical data. The day trader then uses this information to execute informed, and hopefully profitable, trades. For each method of analysis though, the information used by traders is different. And, while it is possible for traders to use both fundamental and technical analysis, it is more common for a trader to choose one as part of their trading strategy.

Fundamental Analysis

Fundamental analysis relies on the study of economic, financial and industry information for a security in order to predict the movement of the price of its stock. Traders using fundamental analysis believe that they can predict future market prices based on these factors.

Fundamental analysis can be separated into 2 main categories: top-down and bottom-up. Top down analysis looks at national and global economic factors (macroeconomic) and how these factors will affect a specific security.

Bottom-up first looks at a specific security and then decides whether or not the present is a good time to buy the security (microeconomics).

Most day traders do not employ much fundamental research. However, keeping an eye on the fundamentals of a security and the market can help a day trader. Some experts believe that too much fundamental analysis can be detrimental for a day trader. The main reason for this is the idea that too much consideration of fundamentals - usually long term instead of short term - can lead a day trader away from the basics of day trading.

Ultimately, day trading requires rapid responses to price changes, instead of a focus on business and industry trends.