When buying anything, people like to believe that they are
paying a fair price for the value they are receiving. Fundamental
analysis offers traders the potential to determine or least to
estimate the relative value of a given company to its current stock
price. Fundamental analysis can also compare the relative value of
one company to that of another company or group of companies in
order to refine their search to the best opportunities
available.
KEY REASONS TO USE FUNDAMENTAL ANALYSIS
Traders typically rely on fundamental analysis to do several
things.
- identify companies that poses superior growth and value
characteristics
- to reduce emotional decision making- rather than relying on
"gut feelings"
- traders can look for potential buy/sell signals that are
generated based on specific and objective criteria
- To identify and confirm buy and sell signals generated from
other forms of analysis such as technical analysis.
- A trader can also work in opposite direction and use
fundamental criteria to first identify a list of companies that
possess superior growth or value characteristics, and then apply
some technical analysis tools to that list of stocks to find buying
opportunities.
- To use it to identify companies that are performing well as a
business enterprise in the belief that their share price will
perform well over time as a result.
- short term traders tend to use technical analysis while longer
term investors often prefer to use fundamental analysis.