There are many types of traders in the stock market investment in Malaysia. There are those active traders known as scalpers and they are merely concerned about making as many trades as possible during the day.
There are also those Momentum Traders that closely monitors the market for a sudden price shift and they ride the momentum train to take advantage of it as much as possible.
Then, there’s fundamental trading which is a form of trading that is more concerned about the shares from the company level.
In this article, I will talk more about fundamental trading because it is a pretty interesting trading style in and of itself.
What is Fundamental Trading?
To better understand what Fundamental Trading is, you have to first know about Fundamental Analysis.
Fundamental Analysis is just a method whereby a trader evaluates the price of the stock’s intrinsic value by examining the factors that can affect it.
The share price is affected either by the industry conditions and the general economy (among other macroeconomic factors) and also from the micro-economic level as well such as company management and their financial statements.
With that being said, Fundamental Trading is essentially buying or selling stocks based on fundamental analysis.
In the next part of the article, we will delve deeper into its intrinsic elements.
For investors to know how the share prices are priced, they will look into the company’s financial data such as the revenue, the cash flow, and the earnings per share. These figures should be highlighted in the company’s quarterly and yearly financial reports.
Other than the financial data, many different traders also look into other factors as well such as the analyst upgrades and downgrades and the company’s earnings announcements.
All of these things combined will allow the fundamental trader if it is a good time to buy or sell shares. Do note that the data is not only limited to a chosen few; it is available for everyone. So if you’re going to be a fundamental trader, you have to act quickly.
A Stock Split is basically the company doubling their shares for investors to purchase. This is important to know for the fundamental trader because it can potentially affect the price of the shares that are currently in circulation.
In most instances, after the announcement of a stock split and before it is sold to the public, the prices of the current shares will increase. However, after the shares are available to the public, the prices of the current stocks invariably dip lower.
Takeovers, Acquisitions, and Reorganizations
In the event that another company tries to buy the majority of the shares of an existing company, it will most likely be acquired by the entity that purchases the stocks. In this case, an Acquisition occurs and the prices will increase before the period of acquisition and might decrease after the acquisition has been finalized.
The fundamental trader is an astute trader. They are the ones who look at the stock’s price based on individual company data. A lot of analysis will be required to become successful, but more often than not, you will become pretty wealthy when you become a fundamental trader.