Fundamental trading is a trading strategy that is based on the analysis of economic and financial data to make investment decisions. It involves evaluating a company’s financial statements, management team, industry conditions, and other factors to determine its financial health and potential for future growth.
Fundamental traders typically use a long-term perspective and may hold positions for an extended period of time. They are often more interested in the underlying value of an asset and may be less concerned with short-term price fluctuations.
To implement a fundamental trading strategy, traders will typically start by conducting a thorough analysis of a company’s financial statements and other relevant data. They will then use various valuation techniques, such as discounted cash flow analysis or price-to-earnings ratio analysis, to determine the intrinsic value of the company’s stock.
Once they have determined the intrinsic value of the stock, traders will compare it to the current market price to determine whether the stock is undervalued or overvalued. If they believe the stock is undervalued, they may purchase it with the expectation that it will appreciate in value over time. If they believe the stock is overvalued, they may choose to sell it or avoid it altogether.
Overall, the goal of fundamental trading is to use a deep understanding of a company’s financial health and future potential to make informed investment decisions.
