ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Fundamental analysis - what it is and how to use it when trading stocks and futures

Updated on March 28, 2012

What is fundamental analysis?

Fundamental analysis for traders is about using news, data releases and other announcements to give you an idea about whether to buy or sell. So, for instance, if you hear that a company has been profitable, you can expect the stock price to move up. Similarly, if you hear that GDP is better than expected, you can expect the country's indices to move up. On the face of it, it sounds like this is the only sensible way to trade.

Problems with relying on fundamental analysis

However, the problem comes when you consider whether the markets are efficient or not. In other words, did other traders already expect the release and so had factored in the right price for the market, that is, has the market already moved to the position it should be at because others had already expected the announcement? Economists and academics alike would argue that the market is indeed efficient and the news, announcement or data release has already been factored into the price - indeed, one topic I will never agree on with a friend of mine is this exact issue!

It's an oft-debated question. Hence, you have probably heard the quote, "The market can stay irrational longer than you can stay solvent." (attributed to John Maynard Keynes). Loosely-speaking, this means that while you might have expected the market to go up based on sound logical reasons, the market continues to drop and drop resulting in you losing a lot of money.

A smarter approach

As you have probably guessed by now, I am primarily a technical trader. This means that I use patterns in the chaos of the charts to help me decide whether to buy or sell. Naturally, I do not trade around data/news releases as shock news would cause the market to spike through any price levels I am watching. Nor do I take trades based on "gossip" about the economy.

My approach, however, is that I do not completely ignore the fundamentals. If there is rumour about a negative announcement, even if there's a good technical set up for a bull trade, I will sit it out. The way I see things, fundamental analysis gives you a general idea for a direction; technical analysis gives you a reasonably precise level to take a trade at.

Trading checklist

You can use this checklist to determine whether you should open a position or not. As per above, if the sentiment suggests "buy" but the technical analysis suggests "sell", then stay well away from the market!

Buy or sell?
Fundamental Analysis/Sentiment suggests:
Technical Analysis suggests:

Final word

I hope you find this briefing useful. If you have any questions or comments, please feel free to add them below.

Warning: Trading involves the risk of loss. Please consider carefully whether trading is appropriate to your financial situation. Only risk capital should be used when trading. You are at risk of losing more than your initial investment. Past results are not necessarily indicative of future results.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)