by Carol Gilmore | June 18, 2018 8:43 am
When you do fundamental forex trading, your trading style focuses on company-centered information and events. You use these information to spot which stocks you should buy and when to buy them.
Most of the time, investors associate fundamental trading with the buy-and-hold strategy. This is because you typically have to wait for a long time before you can reap excellent results from your investments.
However, there are still many instances where fundamental trading can give you high profits even in the short-term.
Meanwhile, we’ll talk about the things that you should consider when you’re trying out fundamental trading in their Forex Trading Account Types
If you’re a fan of fundamental analysis, you would know that earnings announcements are very important data for an investors. This is where you will see how the company has performed during the past quarter, season, or year. This is also generally the time when the business issues its earnings forecast or guidance.
During these times, the short-term momentum trade opportunity is very much available due to the reaction of many traders to any kind of information the company releases, whether it meets, exceeds, or fails to reach analysts’ expectations.
Analysts typically issue their measure of a company’s strength. They can also revise these measures upwards and downwards, and you want to be the first one to know these things when they do.
That’s because there can also be huge or substantial market reactions to such downgrades or upgrades, paving the way for a short-term trading opportunity, especially when the downgrade or upgrade is unexpected and by a prominent analyst.
Remember that the price action in this kind of scenario is particularly quick, so you have to be as quick, if possible much quicker, to nimble on your short-selling button.
Stock splits are when the company decides to split their stocks in a specific number and change the price of the stock per share accordingly. For instance, a company may decide to have a 2-for-1 stock split. If you’re holding 1 stock that costs $20, it will become 2 stocks that cost $10 each.
Most companies do this to entice more investors to buy their stock, since, theoretically, a $10 stock looks more purchase-able than a $20 stock. However, a stock split doesn’t change the company’s market capitalization fundamentally.
Historically, a number of specific trading patterns take place before and after a stock split announcement. There’s price appreciation, meaning short-term buying opportunities during the pre-announcement phase. Price depreciation will likely occur in the post-announcement depression, meaning shorting opportunities for the trader.
There’s an old saying that goes, “buy on rumor; sell onnews,” which very much applies to trading on takeovers and reorganization. During such events, a stock will often encounter extreme price swelling in the speculation phase up to the event itself. Afterwards, the price significantly goes down right after the event has been announced.
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