Why You Should Completely Ignore Fundamentals When Day Trading

Fundamental analysis will hinder you, not help, when day trading

Fundamentals and Day Trading
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Whether you trade (or want to to trade) forex, stocks or futures, don't get distracted by fundamentals. There are loads of websites and sources out there discussing how a company is run, what it's profits could be, how the economy is looking and what the Federal Reserve is going to do at its next meeting. All this information is useless to day traders; don't wast your time with it. Here's why.

1. Time Frame: For a trade that last five minutes, do you think what is on a company's balance sheet matters?

A company can have horrible financial statements, and yet for months on end it can rally. If it can rally for months it can certainly rally for a few minutes while you're in a long trade...or fall. The point is, the fundamentals don't matter on short-term trades. 

Anything can happen within the 1,2, 5, 15 minute span of a day trade. As a day trader you don't need to know anything about the financials of the company you are trading, it will only serve to distract you. If you do know about the financial position of a company, don't let it bias your trades. As indicated, anything can happen during one day, and especially during one trade.

2. Trade Your Plan: As a day trader, your primary goal is consistently implement your trading plan (once you've create a plan, see: Starting Out as a Day Trader, Here Are Your First Three Goals). Researching how bad/good the economy or a company is doing is only going to blind you to what is happening on the only real piece of timely information that matters--your price chart.


The price chart tells you exactly what an asset is doing at any given time. By analyzing that chart you can find trade setups based on your trading plan which more often than not produce a profit. If you buy into what others are saying you may start ignoring your trade signals, missing out on potential profits, or worse yet, completely deviating from your plan.

When this happens, you are trading randomly, without a plan. It's stressful and unprofitable.

3. Charts are Timely. Fundamentals, Not So Much: As indicated above, your charts tell you exactly what is happening now. That's what matters to a day trader. We don't need to consider a trade that may last 10 years like an investor, we only need to worry about right now. Various economic indicators are released every few days, and company financials released each quarter. These are of little use to a day trader. Instead of reading financial statements and economic reports, practice your chart reading skills, finding trade setups and implementing your trading plan.

For additional reading, see: Do I Need to Watch the News to Be a Good Trader? (the answer is no), and 10 Popular Investment Myths (Part 1).

The One Time to Monitor News

As a day trader there is no need to follow the news or be aware of the the underlying financials of a company or the economy. You do need to know when earnings or economic reports are released though.

While these don't matter to day traders, these news releases can cause big swings in price as both short and long-term traders react to the news. 

If day trading U.S. markets, check http://www.bloomberg.com/markets/economic-calendar for scheduled economic news releases or important events which could affect the market. Stop day trading about 5 minutes before, and for about 3 minutes after (sometimes longer if the price is moving wildly) the news release. Focus on capturing normal movements which occur every day; don't get greedy and try to predict how the market will react to a high impact news release. Often the price will move aggressively in both directions, stopping you out before the market establishes a more sustained trend.

The same concept applies to forex trading: step aside for high impact news releases. Since the forex market is global, be aware of all high impact news events which may impact the currency pairs you are trading. For a forex economic calendar, see http://www.dailyfx.com/calendar

If day trading stocks, be aware of scheduled company announcements in stocks you are trading. While you don't need to care about is says, you don't want to be trying to make $0.10 on 5000 shares when an earnings release comes out and gaps the stock $1 against you. Check out http://biz.yahoo.com/research/earncal/today.html for an "earnings calendar."

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