Disk 2.2 Fundamental Analysis

Fundamental analysis of stocks and the financial health of the companies they represent is an arcane science (or maybe a black art).

Fortunately, Flag-Trader has little requirement for it other than an understanding of the potential effect that a company's Earnings Report, issued quarterly by a company, can have on it's stock price.

Overall, the movement of stock prices is influenced more by sentiment than by company specifics. That sentiment may be general relating to the market or specific relating to the company with the most powerful influence being the quarterly Earnings Report mentioned earlier.

Flag-Trader is looking for the most predictable situations and therefore seeks to avoid disturbances caused by news. So the general requirement is that any news, particularly the Earnings Report is in the past.

Fundamental analysis therefore plays little or no part in the Flag-Trader strategy. Only an understanding of the significance of news and its potential impact on sentiment is required.

Summary

A quick passing glance at an understanding of option trading in order to introduce the concept of Open Interest which adds a powerful twist to the simple flag pattern indicator.