3 Fundamental Financial Market Trading Techniques to Learn Before Making Your First Trade

Financial securities trading involves speculating and purchasing stocks and commodities in the hopes that those values will eventually rise after your purchase. These investments can be short or long term, and offer a great way to actively set up your financial future, rather than purchasing ready-made financial products such as mutual funds from the bank.

Mind you, this isn’t the road to quick riches. The days of overnight penny stock millionaires has sadly passed. In order to be successful in this ride-or-die game, you need to familiarize yourself with basic analysis and trading techniques before deciding on what trading style suits you best.

Studying the financial markets

1. Fundamental Analysis

The advantage of trading using a fundamental analysis is markets often temporarily price investments too high, or too low. A smart trader recognizes that the market always eventually catches up and makes a correction, allowing a trader to capitalize on the “too low” scenario to make a profit.

Often also referred to as a “qualitative analysis,” fundamental analysis is considered the foundation of all smart trading, whether trading in stocks or commodities. Though detractors will say that the market is too volatile and unpredictable to speculate on. Here, a trader uses smart analysis of a trade’s financials and weighs them against the current sociopolitical factors that may impact buyer confidence.

Fundamental analysis is the first trading method a beginner needs to learn, as you’ll be teaching yourself how to read a balance sheet, reading the basic building blocks of success of a given security investment — Ie., revenues, expenses, assets, liabilities, and other aspects of an equity or commodity’s current financial health.

In essence, a successful trade is predicated on analyzing how an investment should perform under current market conditions, and buying based on smart data combined with speculation.

2. Technical Analysis

Technical analysis also analyzes balance sheet information, but takes it a step further examining earnings, dividends, assets, quality, ratio, new products, research and the like. This method of market speculation uses charts to predict historical pricing patterns and market trends that can be exploited for profit. Learning how to read forex charts is mandatory if you want to use this trading techniques.

Proponents of this trading technique believe fundamental analysis to be far too basic when determining the price of security investments. Believing instead that the market has already delved deep into a investment’s financial prowess and weighed that data against current sociopolitical factors before setting current prices.

A technical analyst will accept current pricing at face value and compare that information to historical data, weighing it against current market conditions to find repeatable trends (past and emerging) that can be exploited to “buy low and sell high”. These historical trends include relative strength index, regressions, inter and intra-market price variables, business cycles, stock market cycles and others studied largely through the use of a variety of charts.

Scalping using oscillator

3. Graphical Analysis

Graphical analysis is nothing more than technical analysis on steroids, using a variety of industry charting methods and modern software to speculate future stock and commodity pricing. These tools include basics like the age-old Candlestick Charts, Dow Theory, Elliot Wave Theory, and other methods of data analysis — normally combining several techniques to get the most accurate predictions possible.

Traders who use graphical analysis may use existing chart data available on the various exchanges and online trading platforms, or make use of more robust automated graphical trading tools to aggregate and pool data in modern graphical interfaces.

A graphical analysis can combine fundamental and technical investment data to identify reversal patterns (Ie., when a given trend is over and regressing) and continuation patterns (Ie., prices on a current trend continuing on their predicted path).

Graphical analysis tools are the definite go-to for modern traders as they not only help to identify securities an investor should buy, they also help to monitor changing conditions for opportunities to sell or short a trade, to increase profits and reduce losses.

Word of Caution

Billions are won and lost every day on the floor of stock and commodity exchanges around the world. Familiarizing yourself with the fundamental trading techniques listed above is the only way to set yourself on an eventual road to success in the financial trading markets.

Training and research will be the core basis of all decisions you make, as emotional trading will cause you nothing but harm in your trading career. As Alexander Graham Bell once said:

“Preparation before anything else, is the key to success.”