Most active traders use a combination of chart patterns and technical indicators to spot opportunities, but there’s no doubt that fundamentals and news drive price action as well. While event-driven traders leverage news flow to profit from volatility, there are many other forms of fundamental analysis that active traders can use to gain an edge in the market.
Let’s take a look at some of these fundamental analysis techniques and how you can employ them to gain an edge in the market that most traders ignore.
Improve Your Odds with Seasonality
Seasonality enables you to quickly determine when a stock tends to outperform or underperform on a monthly, daily, or hourly basis. For instance, it may not be surprising that 1-800-Flowers Inc. (FLWS) tends to outperform around Valentine’s Day as revenue increases and retail investors scoop up shares on Robinhood and other platforms.
Aside from holidays, most companies have some level of seasonality to their prices across different timeframes. Position traders can use monthly or weekly seasonality data whereas day traders may look at daily or hourly seasonality to identify trends. You may be surprised to discover robust trends that could have a real impact on your trading.
BA Seasonality Over 20 Years – Source: TrendSpider
In the example above, Boeing Co.’s (BA) price rose in April more than three-quarters of the time over the past 20 years. The stock also moved lower during August 60 percent of the time! Position traders might use this data to influence their bullish or bearish bias during a given month—i.e. making only long trades during the month of April.
There are a few caveats to keep in mind: If you look at too long of a timeframe, the results may become too normalized, so it’s important to look at the right time frame. You may also need to account for one-off market-moving events, such as the 2008 financial crisis or the current COVID-19 pandemic, which could skew results during a given month.
Find Out What Analysts Are Accurate—and Which Ones Aren’t Even Close!
Analysts have become a market-moving force in the world of retail investing and round-the-clock news cycles. Most analysts have specific areas of expertise, such as healthcare or technology, and hold credentials like a CFA, CPA or JD. They may also work on behalf of companies, which can be a conflict of interest when it comes to recommendations.
The accuracy of analyst estimates on the whole is questionable at best, according to many studies, but that doesn’t mean that every analyst opinion is worthless. Some analysts are better than others at predicting target prices while analyst commentary can certainly move markets. You may also look at changes in analyst sentiment on the whole as a leading indicator.
Analyst Estimates Widget on TrendSpider – Source: TrendSpider
TrendSpider makes it easy to assess analyst ratings and even plot them on a chart to see how accurate they turned out to be in the long run. By doing so, traders can determine what analysts are worth their salt and follow the ones that matter. They can also get a sense of analyst sentiment in the aggregate at any given point in time.
In the example above, Citigroup analysts have been consistently wrong when it comes to Tesla Inc. (TSLA) over the past 26 weeks. The analyst firm most recently issued Sell ratings ahead of the stock’s massive run-ups on July 16 and August 4. Traders heeding that advice could have missed out on significant upside in a matter of just weeks.
Following News & Events on Benzinga
Many traders use event-driven strategies, such as fading earnings announcements, to identify opportunities. When using these strategies, it helps to have a real-time news feed to provide instant notifications of an event, as well as a high-quality news feed that provides ongoing analysis and coverage of things like analyst rating changes.
Benzinga’s premium news feeds provide some of the most important stories and insights from around the web, helping you stay abreast of information. TrendSpider subscribers have free access to this premium news feed to help stay on top of events as they happen, as well as gain fundamental insights into how events may be interpreted.
The Bottom Line
Most active traders shun fundamental analysis since they’re focused primarily on short-term price action. Despite the longer-term nature of fundamental data, there are some data points that can help inform day-to-day decisions for traders—even day traders. Incorporating fundamental analysis can provide an edge in the market that others ignore.
For an in depth video walkthrough of using both fundamentals and technical analysis when planning your trades, watch this video:
Try TrendSpider today to leverage our unique fundamental analysis tools, as well as our market-leading set of technical analysis tools to level up your trading and give you a durable edge in the market.