Thursday, 25 December 2014

Fundamental Analysis for traders

The use of the fundamental approach in trading has long been an object of argument between its followers and those who mercilessly deride the method’s usefulness. We will not take sides in this eternal argument, but we will try to find out how the average trader can benefit from fundamental analysis. Read on to discover the strengths and weaknesses of fundamental analysis as a traders’ tool. (For more insight, see What Can Traders Learn From Investors .)

The Mechanics The fundamental approach is based on an in-depth and all-around study of the underlying forces of the economy, conducted to provide data that can be used to forecast future prices and market developments. Fundamental analysis can be composed of many different aspects: the analysis of the economy as the whole, the analysis of an industry or that of an individual company. A combination of the data is used to establish the true current value of stocks, to determine whether they are over- or under-valued and to predict the future value of the stocks based on this information. (To learn more, see Introduction To Fundamental Analysis .)

Methodology-wise, different approaches can be taken. For example, industry groups can be compared with other industry groups, while specific companies within those groups are compared against each other.

Role in Trading The expediency of applying fundamental analysis to trading depends on several criteria. The first factor that should be taken into consideration is the potential profit sources you are targeting. A stock exchange is no factory and it does not produce any kind of material value. If you are really after a profit you need to know whose loss can be turned into your profit. Moreover, to trade profitably, you need to know the reasons for which somebody else’s money can become yours.

There are three profit sources:

1. Your fellow traders. specifically those who are less knowledgeable, less experienced or simply too slow on the draw, can be a source of profit for you. Of course, the traders are out to make money, but many them will also lose money. Here you can profit by applying better trading skills and better quality trading systems.

2. Initial public offerings and companies issuing additional stock can provide you with an opportunity to cash in on the discrepancy between the IPO price of the stocks and the prices at which they will eventually settle. As a trader, your earnings will be well-deserved compensation for the risk you take on, but this level of risk can be reduced by using technical analysis. (To learn more, see the IPO Basics tutorial and The Murky Waters Of The IPO Market .)

3. Established companies. mutual funds and other large financial organizations make big moves in the financial markets, and can act as portfolio builders for investors and traders. In this case, a trader’s profit will act as compensation for the risks taken. In fact, the trader insures major investors against fluctuations in the cost of the stocks by buying the related risks and trying to use them.

Therefore, technical analysis can be considered a means of profiting from less experienced traders, whereas one of the ways fundamental analysis can be used is as a tool for making money on a major market player (a major corporation or government).

As far as short-term trading is concerned, fundamental analysis cannot be used as a tactical, short-term decision-making method. Technical analysis enables traders to gain a vision of the market and make the right move at the right time, while fundamental analysis should be applied strategically, over longer periods of time. It helps an investor obtain information about the overall state of the market, attractiveness and state of a specific security as compared to other securities, However, when and how to react to the information, derived through fundamental analysis, is determined using technical analysis. (For more insight, see The Basics Of Technical Analysis .)

Regardless of your trading role and attitude to fundamental analysis (and the amount of trust you put in it), you have to be knowledgeable about a number of things to use this approach. The underlying principles of fundamental analysis are based on a number of factors that affect the economy. Year in year out, these factors are becoming increasingly volatile and harder to predict. For a person who isn’t educated in the required related fields, trying to find the key morsel of fundamental information in that motley hodge-podge of economic, political and other data and correctly interpreting it can become a wild goose chase.

Conclusion

Short-term traders are less able to benefit from fundamental analysis, but what about long-term investors?

Even if you are an expert who spends 24 hours a day keeping an eye on all the fundamental developments that can influence the market, the reliability of your forecasts will still be relative. Fundamental analysis will probably work most of the time, but there will hardly ever be the possibility of predicting when it’s going to fail. As a result, it is most effective when used over a longer time frame, allowing it to provide a more balanced picture of a company.

The fundamental approach is often used by long We all love to dream about the future we want, but many of us do not like the idea of organizing our finances and preparing a financial plan. It seems that our dream of our future is the fun part, but planning sounds like tedious and boring work. This is evident by the fact that 65% of individuals do not have a financial plan.

A study found that the benefit of having a financial plan is very significant. On average, individuals who had a plan for retirement had two and half times more assets in their retirement than those who did not have a plan. Having a plan is only part of the success equation because working with an advisor and having a financial plan shows that there is a nine to ten times increase in assets than with those who do not work with an advisor and have a financial plan.

This may explain why one third of individuals consider winning the lottery as one of their financial strategies to achieving their financial goals. So why do most of us not have a plan? It cant be because of a lack of awareness since there are many financial institutions that are advertising the importance of planning. There is also a lot of information and material on the subject with millions of results on Google. So when it comes to Financial Planning why is it that we are not prepared? Well here is a list of the three myths that I have experienced people saying.

Myth of Time: In todays fast paced life we are all starved for time. We are so busy in our everyday activities that we feel that taking time for planning is not available. When it comes to planning there is an upfront commitment of time in identifying your life goals and putting together an action to achieve them, but once you complete these steps then it is just a matter of monitoring your progress as time goes on. The time commitment is minimal compared to the return you get by working with an advisor and having a plan done as noted above.

Myth of Knowledge: The financial world, especially today, may seem too complicated with all the information out there. We are exposed to a lot of information and financial lingo. If you start by telling yourself that it is not too complicated and too hard, then you have no excuse not to do it. You may consider participating in a seminar or a workshop. You can start reading books that talk about financial matters. Soon you will learn that the financial world is not complicated once you learn some of the basics.

The Myth of Wealth: I dont have enough savings to worry about a financial plan. If you have savings then you have enough. Having a plan will help you decide not only where you should put your money, it will also help to define the why. I have learned that the why is more important than the how and where. When it comes to planning you need to start somewhere. Dont think that just because you think you dont have enough you should not have a plan. A Financial Plan will help you define the goals and dreams you want to accomplish.-term investors, but it can also be combined with technical analysis to help traders gain insight into the overall state of the market and the attractiveness of a particular security. Business Analysis improves the sense of doing business. It can be defined as a set of activities which can be carried out in order to analyze business situations. A business analyst can identify problems in a project and suggest solutions to overcome those problems. To become a competent Business Analyst it is important to undergo proper training which will enhance your knowledge and provide you with the much needed knowledge. AstroWix has been conducting workshops in Business Analysis providing in depth knowledge on how to address the needs and demands of a business. Often organizations have to deal with complicated projects which need to be analyzed first and then carried out. This will eliminate the possibility of project failures or disasters .Business Analysis is another name for scrutinizing tasks and improving operations by making them effective. The skill set involves critical thinking and analyzing skills.Also communication and relationship building skills play a very crucial role in becoming an impactful business analyst. Programs like Business analysis Training Bangalore & Mumbai will develop and enhance analytical skills and provide significant value to projects and the business enterprise. There are a number of benefits of Business analysis some of which are:

� Helps in Analyzing business situations

� Facilitates working with project managers and business sponsors to be able to face the complexity of the business analysis effort needed for the project.

� Helps to develop strong relationships with project stakeholders.

� Helps to generate core competencies amongst professionals.

� Effective communications within the company.

Financial Planners play a important role in helping their clientele preserve, invest, and consequently grow their capital. Typically they can help plan and achieve specific financial targets like saving for a business or purchasing a house. Based on the experience of whom you work with, you may find that some even specialize in areas like retirement or estate planning.

Don’t mistake advisors with stockbrokers — the marketplace mavens professionals contact in order to trade stocks. Another area that folks confuse a lot would be that they believe that financial advisors are also insurance agents or accountants.

In terms of qualifying criteria to become a ‘financial planner’ presently there isn’t much which needs to be done outside of hanging a sign up that says ‘financial advisor.’ They might tack on an alphabet soup of letters after their names, but CFP (short for certified financial planner) is regarded as the significant credential. A CFP status is essential and is the initial sign that the person you want to do business with is in fact experienced the financial industry. Anyone that carries the CFP status is devoted to taking continuing education and ethics training. The CFP credential is a great signal that a possible manager can give sound financial assistance. That being said, simply because you’ve passed the exam doesn’t mean you have the credibility and skills needed for each customer. As with most significant lifestyle decisions, make certain you are very thorough about deciding on the best manager.

Traditionally, financial consultants earn their income either from commissions or by charging hourly or flat prices for their expertise. Traditionally a commission is paid when somebody buys or sells stock or some other sort of investment. Depending on the person, some people are more comfortable dealing with financial planners that do not rely on commissions. The main reason for this is that there is a feeling that these particular professionals may steer you in a specific direction just for them to earn money, and not because it is in your best interests.

A growing amount of financial consultants earn money only when you pay them a fee for their counsel. If your planner works based on fees then they don’t make any cash from life insurance coverage or mutual funds. That being said, you might pay a set fee such as $3000 for a financial strategy that is customized or you. Or based on your agreement with the financial consultant you can pay an yearly charge that is generally a percentage of the assets they have to invest. However other financial consultants charge a set service charge similar to lawyers or other specialists.

Something to be familiar with is the fact that you will come across financial advisors that do not take clientele with less than $250,000. The reason for this is that most planners prefer to deal with a larger accounts that they are paid more for their time. In conclusion it’s best to find out later that you’re comfortable working with and they will make the time to ensure that your financial concerns and questions are addressed.

Almost every successful businessman will tell you that record keeping is critical to running an efficient business. Whether designing sophisticated aeronautics or simply selling scented soap, all businesses record and analyze their transactions to refine and optimize execution. When it comes to trading FX, however, very few traders diligently record and review their trades. FX trading, with its instantly dealable rates and self-organizing accounting software, makes it easy to forsake the discipline of keeping a trading diary. Yet a diary can improve a trader’s performance far more than any piece of advanced technical analysis software or even a $2,000-per-day trading seminar. This article will outline what to record in your journal and will provide an example from the writer’s own trading diary.

Why is keeping a trading diary so valuable? First, as human beings with faulty memories, we simply forget many of the circumstances surrounding our best and worst trades and, as a result, we learn little from them if they are not recorded. Second, the gap between what we think we do and what we actually do during trading can be embarrassingly large — a problem that can easily be identified with proper note taking. Finally, the mere act of keeping a diary introduces a methodical element to trading that prevents us from trading randomly and impulsively — the culprit behind most trading disasters. (For further reading, see Ten Steps To Building A Winning Trading Plan .)

Keeping a diary need not be cumbersome or complicated. Here is a list of three key issues that should be covered in every trade:

1. What did you trade and why? The reason for a trade can be either fundamental or technical (preferably both), but there must be a reason. Too many retail traders put on a trade because they think that prices have either risen or fallen enough, without any technical or fundamental justification for their opinions. Worse, many traders get into positions out of sheer boredom, forcing a trade and then spending the rest of the time trying to justify it. Even if boredom is the primary driver for the trade, having a diary will make the trader record that fact and he or she will be able to see the consequences of such behavior.

2. Where is your stop and limit and why? It is astonishing how many traders get into a trade without any clear idea of where to take a profit or when to get out if the trade moves against them. However, by writing down specific stop and limit orders. the trader consciously plans ahead for any contingency that may occur. Even if a trader disregards the initial stop in the heat of the battle, the act of recording all of that activity will be invaluable in doing post-trade analysis and enforcing better discipline on the next trade. (For more information, read A Look At Exit Strategies .)

3. Did the trade work out as planned? There is often an enormous gap between how the trade setup looks on charts or through the prism of backtesting software and the emotional reality of having money at risk. Comparing the difference between the two can help traders understand their strengths and weaknesses and improve long-term performance. (For more insight, see Backtesting: Interpreting The Past .)

Because trading is such a visual craft, attaching a chart with annotations will complete the diary process by providing a pictorial reference point for further study.

Let’s take a look at a recent trade I made in USD/JPY and the various comments I made regarding its outcome.