What is fundamental analysis and why is it important for trading?
Are you making trades based on what a chart is doing right now, or are you looking under the hood? In this episode, we move beyond pure speculation and break down fundamental analysis, showing you how to evaluate a company or asset based on its real-world health and performance. We'll explore the core concepts, from finding a company's intrinsic valueto key metrics like EPS and P/E ratio, and explain why this approach can give you a significant edge over the long term.
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Key Takeaways
- Fundamental analysis is the process of evaluating a company or asset based on its underlying financial health and performance, not just its price chart.
- The goal is to determine an asset's intrinsic value—what it should be genuinely worth—and compare it to the current market price to find potential opportunities.
- This analysis applies to more than just stocks; it's crucial for understanding the value of commodities, currencies, and even certain options strategies.
- A successful approach often combines fundamental analysis (the "what to trade") with technical analysis (the "when to trade"), using both to get a complete picture.
"If you're only looking at the curb appeal, you're missing the foundation."
Timestamped Summary
- 1:06 Breaking down the core concept of fundamental analysis
- 2:46 Why fundamental analysis applies to more than just stocks
- 3:17 Top-down vs. bottom-up approaches
- 4:39 Key metrics for stock analysis
- 6:14 The danger of ignoring fundamentals and chasing the chart
- 8:33 How to combine fundamentals with technicals
- 10:43 A simple, actionable process for fundamental analysis
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