Experienced traders rely on a number of predictive analysis techniques in their decision making. Fundamental analysis is one of them.
How does this work and what does it involve ?
Stock market price fluctuations are the result of several factors. The law of supply and demand is one of them. Other factors also come into play, including the activity of the company listed on the stock exchange, its economic position and its prospects, among others. In trading, fundamental analysis seeks to determine whether a company's stock is undervalued or overvalued.
Fundamental analysis focuses in particular on the company's recruitment policy, positioning in relation to its competitors, investment policy and development prospects in relation to its market. Nevertheless, fundamental analysis goes beyond the analysis of the company's financial performance, taking into account macro-economic factors likely to have a direct or indirect influence on the activity of the company under study.
In addition to interfering with the company's operations, these factors also affect the perception of value by traders and the market as a whole. Thus, fundamental analysis incorporates a significant amount of strategic research and psychology, meaning that its findings are not always 100% accurate and guaranteed.
The biggest challenge in trading analysis is to anticipate the reactions of traders and markets to events involving the company under study. Not all traders will react in the same way to a company's IPO, for example. Some will jump on the new stock, seeing it as an unmissable opportunity, while others will be more cautious and wait for the market to tell the truth.
The price of each stock depends directly or indirectly on varied financial, accounting and macro-economic data. It is therefore crucial to know all the dates of publication of these data, reactivity being vital in trading. Good fundamental analysis is always based on the economic calendar.
This tool gives the trader a precise schedule of the dates and times of publication of a particular index related to a company's stock. The recent performance of the index and analysts' forecasts are also displayed. At the time of release, the calendar automatically shows the evolution compared to previous data and to market expectations.