Konstantin Boykachev

CEO Proforexea LLC

Honest Coder

Professional Trader


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Konstantin Boykachev

CEO Proforexea LLC

Honest Coder

Professional Trader

Blog Post

What is the danger of fundamental analysis


fundamental analysis factors

Fundamental analysis can be roughly divided into three parts: analysis of macroeconomic indicators, study of data from a single industry in the context of a country or the whole world, analysis of multiples and reporting of a particular company. It would seem that it is difficult: wait for the release of positive reports and capitalize on the growth of stock or currency quotes? Open the economic calendar and capitalize on the wave of volatility? But here’s the bad luck: the company seems to have good reporting, it seems that the statistics on the US labor market are good, and the asset is getting cheaper. Fundamental Analysis Factors Not Working? Or maybe you just missed something?

Fundamental Analysis Factors: How to Avoid the Overconfidence Trap

1. Underestimating other factors… Suppose you are expecting positive financial statements of the company and are aiming to capitalize on the growth of stocks. You buy papers, wait and … Stocks are getting cheaper. Why? What is the market? It is a kind of platform where there are buyers and sellers. If the whole market understands that stocks will rise, then why sell them before the financial statements are released? And if their expectations come true, then who will sell the securities of a successful company? There is demand, no supply.

There is, of course, another model: buyers start to raise the price, those who are ready to sell securities appear (after all, the price is rising) and thereby contribute to the growth of the bubble. This is a vivid example of why, even at the moment of positive news, instead of stable growth, volatility appears.

What factors should be considered in general fundamental analysis:

  • The state of the industry as a whole. The success of a single company with the entire industry stagnating does not always play into the hands of an investor.
  • Local factors: corporate conflicts, lack of a sales market, geopolitical conflicts.
  • The strength of individual fundamentals. For example, the price increase due to one factor is taken into account, but it turns out that the second unaccounted factor is more significant.

The problem is to understand what factors really should be taken into account and which of them are the most influential.

2. Unjustified expectations… Let’s say you expect the company’s statistics to be 10% better than last quarter. Statistics come out, but it turns out that the indicators are only 3% better. What are the holders of the papers doing? Sell ​​(for example, to long-term investors, “hamsters” or market makers). The price is falling. It seems that the result is positive, but it seems not. Example: Facebook shares plunged due to investor frustration over Asian expansion and slow pace of development.

3. “The train has left”… Suppose that while waiting for positive statistics you buy an asset, it comes out, expectations are justified, but the price does not move. The reason is simple: you are not the only one who expected the price to rise and bought securities from less prudent investors in advance. That is, the positive statistics have already been “played back” in advance and those who managed to enter the market at the very beginning of growth have earned on it.

Such traps of fundamental market factors are inherent not only in the stock market, but also in currencies or commodity assets. It is important to track the quotes of correlated assets and diversify risks.

Output… The factors of fundamental analysis should be considered comprehensively: both in the context of an individual company and in the context of macroeconomics. It is not recommended to trade on the news without viewing the quotes charts and without using at least the simplest technical analysis. For beginner traders, there is a piece of advice: work with calm markets and long-term strategies – it’s easier. Do you agree with our opinion? We invite you to discuss the article in the comments!


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