So often friends of mine who know that I am involved in day trading will ask me about the cash flow or P/E ratio of a stock and how I use this in my online trading. I love the look they give me when I disclose that trading is not investing, and although I do use these measures in my investing capacity, I pay little or no attention to them while day trading. What they are referring to is fundamental analysis, this includes factors such as, cash flow and the balance sheet of a company, taking into consideration the wide-ranging economic conditions and the specific sector that a company is involved.
In day trading, it is technical analysis on which we base a majority of our decisions. We use short term charts that are related to recent trading activity in an effort to predict which way a stock may move. By examining recent trends and support and resistance levels, an individual who is online trading, can have a reasonably good idea where this trading activity will take the stock. Recently with so much volatility in the markets, momentum trading and day trading can be especially risky, as this is based largely on market sentiment, which can push a stock with great fundamentals in the opposite direction.
Whether you are day trading or a fundamental analysis investor, it is important to have a grasp of both technical analysis and fundamental analysis, in order to take advantage of short term moves, yet still understand the true longer term strength of the company. It is also important to remember that day trading and long term investing have different tax consequences that will have to be addressed. Of course, none of this matters if you are not getting the results you desire, and go home every night and beat your dog. In this case, go back and review your trades every afternoon to determine where you are faltering.