Publicly available information, often from government agencies and corporate reports, can give everyday investors an edge. It’s one thing to use technical indicators and fundamental analysis to decide which securities to buy. But, when you have solid economic indicators on your side, you can be more specific about when to buy, what assets to trade, and where to place stops.
What kinds of information are the most useful? In addition to GDP (gross domestic product) figures published regularly by national governments, you can evaluate the strength of a country’s economy by looking at its CPI (consumer price index), which often reveals the inflation rate.
Other excellent ways to assess the overall health of a domestic or foreign economy are to analyze interest rates, check the price of commodities produced by the nation, and study its major stock indices to get an idea of trends. Finally, always examine the behavior of gold’s price, as most securities markets tend to rise and fall in the opposite direction of gold’s price patterns. Studying a national economy can provide all kinds of trading insight for virtually every market. However, this kind of data is particularly helpful with forex trading for beginners, who typically want to understand the relative strengths of two nations’ economies. The most relevant data you should include in your everyday analysis before making trades include the following.
Strength of Retail Sales Figures
Retail sales information gives a solid indication of how consumers feel. It’s a sentiment number, and when it’s trending down, there could be numerous problems in the works, like rising inflation, low employment, and political instability. Although this can certainly help you make good market decisions, never rely on just one piece of information. The whole point of using these kinds of measurements is to analyze them together as a general scorecard of how well or poorly a government is performing.
Gross Domestic Product (GDP)
GDP measures the total value of goods and services produced by a nation in a given year. Partial data from one or more months are used to estimate what the yearly total will be. Investors often use GDP to evaluate whether a country is becoming more or less financially healthy as time passes. Large upswings or falls in value can portend significant, usually long-term, changes.
Consumer Price Index
The CPI is the most accurate estimate of inflation at any given time. Why do traders and investors care? Because rising inflation is a telltale sign of a weakening economy. Likewise, interest rates set by national agencies often indicate how easy or difficult it will be for businesses to borrow money. Before you put your hard-earned funds on the line, find out which direction interest rates are headed.
Price of Gold
When the prices of gold are soaring or sinking, and when the price of all the precious metals is up or down, it’s is a smart way to gauge where the major stock indices are going. Historically, gold’s price tends to rise when the securities markets are under-performing and fall when they’re doing well. Every morning, study the levels and direction of all the major stock indices, including the UK’s FTSE, the US S&P 500, the German DAX, and Japan’s Nikkei 225.