thinkTank: Three Steps to Fun-damentally Picking Your Next Trade

Instead of chasing specific stocks, why not try a more logical approach to finding stocks for your next trade? Consider this top-down approach using fundamental analysis.

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5 min read
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Key Takeaways

  • Learn how to look for stocks using a top-down approach in three steps on the thinkorswim® platform
  • Start with the macro view, narrow down to industries or sectors, then focus on specific stocks or options

Here’s a crazy idea: Instead of cramming charts and chasing trades, how about trying a top-down, fundamental-first approach in three steps? (1) Start with the big picture, then (2) narrow your choices by focusing on industries or sectors, and finally (3) zero in on specific stocks or options. This adds some logic to the decision-making process. And you’ve already got all the tools you need.

To start, fire up the thinkorswim® platform by TD Ameritrade and choose the Analyze tab.

Step 1: The Macro View

How’s the overall market doing? Select the Economic Data subtab and you’ll see a long list of info organized into categories (see figure 1). If you want to find something specific, just type it into the search box. If there’s a symbol you’re interested in, put it in the symbol box at the top left. Want to know where inflation is? How about jobs numbers or housing data? It’s all there. Browse all the choices, and when you find something that intrigues you, select and view the chart.

FIGURE 1: ECONOMIC DATA. There’s plenty of information to choose from. Select any category to take a deeper dive. Chart source: thinkorswim from TD Ameritrade. For illustrative purposes only.

Suppose you want to get a better idea of how the housing market is performing. Select Housing, listed under Production & Business Activity. From there, drill down on housing data such as housing starts, how many housing units have been completed, and how many have been sold.

Curious about how new single-family homes have been doing? You could select New Residential Sales, then zoom in on the number of single-family homes sold. You may see a chart that shows sales have been increasing. Does that mean housing stocks might be worth a look? To learn more, you can drill down into sector or company fundamentals.

Step 2: Homing the Industry

Select Fundamentals, and again, the information is organized by categories (see figure 2). If you have a specific company in mind, enter the stock symbol in the symbol box. Otherwise, look through the categories and select those related to your research. Home builders are listed under Consumer Discretionary > Household Durables. Pick a company you’re familiar with or are considering and get information on the stock, industry, company profile, and analyst ratings. You could continue following this process for several stocks, analyzing each one in greater depth by looking at earnings data, analyzing price charts, and viewing company news releases. There’s a lot to go through, so look at what’s most important for your decision-making criteria. If you like what you find, add symbols to your watch list or set an alert to get notified when a stock reaches a certain price level.

FIGURE 2: DRILLING DOWN ON SPECIFIC FUNDAMENTAL DATA. The Fundamentals page is also organized into different categories. You can look up specific companies or select from the various sectors listed on the page. Chart source: thinkorswim from TD Ameritrade. For illustrative purposes only.

Step 3: Check the News for Stock Ideas

You snooze, you lose. That’s how it is with the markets. So, to keep from missing important news events that could impact what you’re trading, tune in to programming from our affiliate, TD Ameritrade Network,* either through thinkorswim (via the Trader TV gadget) or by visiting tdameritradenetwork.com, to stay current on what’s going down as the trading day unfolds.

Also, subscribe to the Daily Market Update with JJ Kinahan. As a subscriber, you’ll get updates in your inbox when they publish. Soon, you may know more than any of your friends about the relationship between market news and price action.

You see? It doesn’t have to be all about charts. Sometimes, finding your next trade might just be fundamental.

*TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly owned subsidiary of The Charles Schwab Corporation.

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Key Takeaways

  • Learn how to look for stocks using a top-down approach in three steps on the thinkorswim® platform
  • Start with the macro view, narrow down to industries or sectors, then focus on specific stocks or options

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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Jayanthi Gopalakrishnan is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

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