As traders, we focus a lot on technicals.

By technicals, I mean analysis based on the price chart and other information about a trade, such as volume.

Moving averages, volume-weighted average price (VWAP), Fibonacci retracement and extension, and indicators like MACD can be powerful technical tools.

There are 100s from which to choose. However, it’s important not to overwhelm your thinking with too many technical indicators.

For many traders, their analysis begins and ends with technicals.

The economy, broad market picture, sector action, or even the name of their trading company mean nothing to them.

They know only the stock ticker, and that’s enough for them.

This is shortsighted to me, like trading with blinders.

There’s a lot more market information that can impact your trade.

To generate consistent profits, you need to see it all.

So today, I want to go beyond price action and tell you about fundamentals.

Playing Sherlock Holmes

Fundamental analysis is a detective game for traders.

You dig into a company’s value by looking at revenue, earnings, future growth, return on equity, profit margins, and debt.

There are also ratios that you want to get comfortable with.

A common metric, earnings per share (EPS), tells you how profitable a company is on a per-share basis. The price-to-earnings (P/E) ratio shows how much you pay for $1 of earnings. A high P/E could mean overvalued or big expectations for growth.

Other measures, like return on Equity (ROE), reveal a company’s efficiency at generating profits from shareholders’ equity. A high ROE suggests a company is using its funds wisely. A low debt-to-equity ratio means less debt relative to the company’s equity and, therefore, less risk.

This stuff matters because it’s your money. Fundamental analysis lets you know whether you’re trading a flash-in-the-pan stinker or a solid company with legs.

I put together a quick video primer on fundamentals a few months ago.

Don’t get blindsided.

Check it out to learn how to get a complete picture of the stocks you trade.

Until next time,

Tim Bohen

Lead Trainer, StocksToTrade

*Past performance does not indicate future results