As everyone knows, I’m a day trader, particularly a trader of low float, low to mid-priced stocks. My watchlist tends to contain fast, volatile movers.
And fast, volatile stocks require a certain kind of analysis, which is why I love technical indicators.
To trade this way, you should have a robust platform that does most of the heavy lifting for you. It should include : technical indicators, news sources, and stock screening capabilities.
My top pick for day trading platforms is StocksToTrade.
If you’re interested in trying it out, sign up for a 14-day StocksToTrade trial today — it’s only $7!
But what if you’re more of a long-term trader? Maybe you’re a swing trader or even a buy and hold investor?
If you’re not familiar with swing trading, read all about it here in my recent blog post.
Longer-term trading and investing require a much different kind of preparation and analysis.
Not sure what that is?
Don’t worry! I’ll teach you everything you need to know.
The number one trading tool for swing traders, long-term investors is fundamental analysis.
But it’s definitely not off-limits for day traders. In addition to using technical indicators, they sometimes need to take a “bottom-up” view of the stocks they’re trading.
Fundamental Analysis: The Bedrock of Long-Term Investing
Fundamental analysis is like peering under the hood of a car before you buy it.
The shiny paint job is great but you want to know how the engine runs, the condition of the brakes, and the history of maintenance.
Fundamental analysis involves evaluating a company’s intrinsic value based on various economic, financial, and qualitative factors.
What are the key components of fundamental analysis:
Financial Statements
Financial statements are the backbone of fundamental analysis. They provide a comprehensive look at a company’s financial health and performance. Here are the key components:
The income statement shows the company’s revenue, expenses, and profits over a specific period.
The balance sheet is a snapshot of the company’s financial condition at a specific point in time. It lists its assets, liabilities, and shareholders’ equity and helps you assess the company’s stability and liquidity.
The cash flow statement shows how much actual cash was generated and used by the company during a specific time period. Know that a company can show profits on the income statement but still have poor cash flow.
Earnings Reports
Earnings reports, released quarterly for American companies, provide insights into revenue growth, profit margins, and earnings per share (EPS).
Management and Leadership
Effective, visionary leadership can steer a company through tough times and capitalize on growth opportunities. To evaluate a company’s management, look at each member’s track record, experience, and strategic vision.
Economic Indicators: The Macro Environment
Interest rates, inflation, unemployment rates, and GDP growth shape the business environment. For instance, a strong economy typically boosts consumer spending which benefits most companies.
Industry and Market Position
The company’s industry and market position gives us a bigger picture beyond the financial data. Is the company a market leader or is it struggling against bigger competitors? What are the industry’s growth prospects and challenges? A company well-positioned in a growing industry often has a better chance of long-term success.
Let’s look at a real-world example from this week of industry and market position acting as a stock catalyst…
On Tuesday, Tesla Inc. (NASDAQ: TSLA) reported vehicle sales for the second quarter. This announcement sent the stock soaring by more than 10% by the market close.
Despite falling vehicle sales year over quarter, it was still good news for Wall Street since the results were better than analysts expected. The data also confirmed TSLA’s position as world leader in the EV market.
Speaking of TSLA stock, it’s currently around $250…
But I see it soon hitting $667 per share….
Why?
Elon Musk is making a pivot towards a $23 trillion market that has nothing to do with SpaceX, Twitter or cars.
Learn more about this groundbreaking move for Tesla and what else I see happening for the company.
And now to the math part of the presentation:
Key financial ratios offer quick insights into a company’s financial health. Here are a few essential ones:
The Price-to-Earnings (P/E) Ratio measures a company’s current share price relative to its per-share earnings. A high P/E might indicate overvaluation, while a low P/E could suggest undervaluation.
The Debt-to-Equity (D/E) Ratio compares a company’s total liabilities to its shareholder equity, indicating how much debt the company uses to finance its assets.
Return on Equity (ROE) measures profitability by revealing how much profit a company generates with the money shareholders have invested. High ROE typically indicates efficient management.
The Current Ratio is a liquidity measure that shows a company’s ability to cover its short-term obligations with its short-term assets. A ratio above 1 indicates good short-term financial health.
My final thoughts…
Fundamental analysis empowers you to make informed investment decisions based on thorough research and a deep understanding of a company’s true value.
By mastering fundamental analysis, you can build a solid foundation for long-term investing success.
If you’re interested in using fundamental analysis, especially for swing trading, you need the right tools.
My AI-driven IRIS system gives you everything you need.
Subscribers to IRIS get live training sessions, stock watchlists, weekly analyst reports, and much more.
Watch this presentation to see if IRIS is right for you.
Have a great day everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade