Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

FUNDAMENTAL ANALYSIS

Fundamental analysis is a term used to represent the process of examining a business from a basic, fundamental level relative to its financial condition. This analysis consists of several mathematical tools used to determine a company's financial health, thus giving an indication of the value of the company's stock.

The goal of many investors who use fundamental analysis is to determine the worth and market value of stocks. Many traders use fundamental analysis either alone or in conjunction with technical analysis to mine for and manage their trade candidates.

It is beyond the scope of this book to go into greater detail than is necessary to introduce and highlight some of the most effective fundamental analyzing tools that I use. Though I do keep an eye on fundamentals, my primary analysis is technical in nature. I believe that certain stocks representing “price value” by the nature of their technical posture also represent a closely correlated “fundamental value.” The Pull-Back Type I strategy reveals these particular patterns. For now, though, let's focus on a few fundamentals.

For the market to show favor toward a company's stock value, three things must be healthy and positively changing: earnings, revenue, and growth.

Earnings

How much is a company earning now, and will it continue to sustain earnings in the future? This is the real question that needs to be answered. If an accurate answer can be determined, then an accurate value can be placed on a ...