Fundamental Traders

Fundamental traders use the company’s figures to determine if a company is a good buy or a good sell. Fundamental trading is normally a long term investment approach but can also be used for the short term.

This type of trading will normally look at a company’s financial ratios such as the P/E level, Earnings Per Share (EPS), and the Dividend Yield. Normally a fundamental trader will look for a stock that is undervalued according to the ratios and hold onto it until the stock is no longer undervalued. This is where the whole buy low sell high saying comes in.

This strategy can sometimes mimic the buy and hold strategy but is not the same thing as holding a stock that is overvalued is considered risky.

Although fundamental trading is predominantly used for long term investing it can also be used for shorter term gains. Some traders try to predict the news of a company and how people will react to it. These traders are sometimes referred to as news traders.