A firm knowledge of a company’s fundamentals is a necessity if you want to have a long term success story when it comes to short term trading. Yes, short term trading focuses more on other things, such as technical indicators, sentimental trading, and trading the news, but the short term takes place under a larger picture: the long term. And to grasp these things, you need to understand how fundamental indicators work. It’s true for any kind of trading, whether you are focusing on stocks and indices, the Forex market, commodities, or whether you are trading them traditionally or through a different marketplace, like the binary options market.
Let’s take a look at how fundamentals work, and how you can use them to become even more profitable.
Why Long Term?
Let’s say you are looking at a Google’s stock and want to see where they will be 12 months from now. First, why is this important? It’s important because all of the short term changes will eventually lead to things one year from this moment. It might be a bumpy road, and changes might occur, but a solid one year estimate of a stock’s price is a good starting point. Currently, Google’s stock is at under $540 per share, but some analysts believe that in a year, the company will go up over $100 per share, up to $645. If this is accurate, then the general trend of the stock will be upward, and short term traders will need to worry about the oscillation as it bounces up and down on its way to $645.
Now, you need to know that psychology plays a big role. Investors believe that analysts are correct, and then they respond accordingly. If enough people believe that Google is currently that undervalued, the price will be driven up as more and more people buy shares. This is psychological in nature, but it does work, and because it works, you need to take it into account as you formulate trades. This is where technical analysis kicks in. It operates under the framework created by the long term fundamentals of a company.
Translating the Concept
We used Google’s stock to illustrate an example, but this is a concept that can be translated to any type of stock, index, commodity, or currency pair. If you want to trade traditionally, you can use this, and you can use it trading binary options, too. It’s completely translatable to anywhere, and it is a necessity if you want to keep being profitable month after month, year after year.
Some of the things that you will need to know are a little different, depending upon what you’re trading. If you are looking at currencies, for example, you won’t be able to look at price to earnings ratios, but you can look at what national banks are doing, where interest rates and yields are, import and export numbers, and so on. It’s a more global type of economics, but it is still relevant, and it is still fundamental information. This sets the stage for the long term movement of an asset, and it is the basic outline of how short term movement will act. It doesn’t matter if you are a day trader in the stock market, or trading 60 second binary options, all of this information is a must-know if you want to be fully prepared for how a day’s worth of price movement will look.
The best part of all of this is that fundamental information is very easy to understand. It is usually already analyzed for you, too, depending on the site you use. All you need to do is see which pieces of information will be most important, and predict how it will impact movement.