The Problems with the Fundamentals
While using fundamental analysis is an excellent starting point for building a case as to whether or not to build up a position in a security, there are some fundamental flaws. First, the information that was used in the building of the financial analysis might not be 100 percent correct, or it may even be outdated. Second, some of the key numbers used in the analysis of the security might be off, such as a company's estimated growth rate, or the estimate of a country's PPP. Lastly, even though the information related to the fundamentals and the numbers used in the estimates are true and correct, there might be a delay as to when the market reacts to this information. The combination of this misinformation, inaccurate estimates, and market delay can lead to a situation where you are building a well thought out position in a security and the trade fails to turn a profit or materialize in the way that you intended.
Analysis Promotes Success
Granted, there are some basic flaws in fundamental analysis. Even though the threat of these flaws is real, the process of fundamental analysis is often a key element in a well-thought-out day trading campaign.
Reading the fundamentals, searching for trading ideas, and then switching to reading the charts in an effort to look for setups is the hallmark of a quality day trading business. This process of starting with the big picture, looking at a country's economy, a particular sector, a security, and then switching to technical analysis to make the final decision as to a possible entry and exit point is often referred to as a top-down approach. This top-down approach is used by the largest and most successful investment banks and hedge funds in their pursuit of outstanding risk adjusted returns. It leads them, and can lead you, to a more focused security selection all the while enhancing your returns while providing a method of allowing a form of intelligence-based risk management.
If you can get the hang of reading the fundamentals, you have gone a long way in increasing the enjoyment and profitability of your day trading endeavors.