Stock Market Analysis
Fundamental Analysis and ETFs Trading
When it comes to trading stocks, undertaking a fundamental analysis is the first step that we recommend that you do. Even if a trader trades stocks on an intraday level and uses no elements of fundamental analysis, it is still recommended that you take a look at fundamental aspects of selected for trading stocks before starting to trade.
Many professional stock traders consider fundamental analysis as providing a foundation that should be established before starting to trade. The main part of the analysis is devoted to studying the financial statements of the selected stocks (public companies). An analysis of financial statements (also called a "quantitative analysis") includes an analysis of revenue, expenses, assets, liabilities and all other financial aspects of a company in order to determine the financial stability of the company and predict the company's future performance. The balance sheet, income statement, and cash flow statement are some of the key documents that are analyzed.
Fundamental analysts study not only the current company's financial reports, but also dig into historical documents as well by analyzing how a company (stock) performed in different market conditions (bull and bear markets), etc. Some aspects of the analysis are intended to determine whether the company's stock is overpriced or under evaluated, to predict possible price performance, and to calculate risk, etc.
As a rule, fundamental analysis requires a dedication of time and resources. It is quite a time consuming task and the majority of stock day-traders skip it. Yet, when it comes to "Buy and Hold" stock investors, long- and mid-term stock traders, professional portfolio managers and institutional traders, the majority of them use fundamental analysis in their trading decisions. It would be wrong to state that they rely solely on fundamental analysis and do no other type of analysis (e.g., technical analysis). For many professional traders, fundamental and technical analysis are tied together and are essential for stock trading.
The only situation when fundamentals can be omitted is when indexes are selected as the main trading vehicle. When it comes to index trading, all fundamental analysis has already been done by the companies who manage the indexes. It is Standard & Poor's Financial Services LLC for the S&P group of indexes, it's the Wall Street Journal for the DOW indexes, and it's NASDAQ OMX Group for the NASDAQ indexes, etc. These companies already analyze all financial statements and provide already-selected baskets (portfolios) of stocks represented by the indexes. In addition, if you select for trading QQQ, DIA or SPY Exchange Traded Funds (ETFs), you can focus on technical analysis only. The opportunity to use technical analysis only is one of the main reasons why trading indexes has become the most popular way of investing in the stock market. QQQ (NASDAQ 100 tracking stock), SPY (S&P 500 tracking stock) and DIA (Dow Jones Industrials tracking stocks) are the most commonly traded stocks not only in the United States, but all over the globe.
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