In Times Of Uncertainty, Wisdom Must Be Applied 

Acquired Knowledge:

In times of Uncertainty, Wisdom must be applied to acquired knowledge.
Trading on Economic Reports or Data releases is one of the most common strategies that many market participants embrace in times like this when the markets are see-sawing.

This post is a compilation from one of my books (The Economic Calendar 101: An Itinerary For Economic Indicators) and webinar content, with the intent of sharing with you how almost anyone could use these economic indicators for leverage in the trading fields.

Especially towards the weekend with profit-taking insight, in expectation of the Japans & UK’s GDP Gross Domestic Product report and various CPI Consumer Price Index, PPI Producer Price Index from Norway, and China, to name a few.

Oil speculators will also be turning their attention to the Baker Hughes report to learn of any further tweaks, even though global future demand is downplayed or simply looks grim. Whether this would be sustainable for the long term remains to be seen.

Today, Global stocks seem to be trading sideways. The Safe-havens continue to attract followers. The JPY is likely to extend more gains to the USD, as I hope the explanation to follow will reveal.

How to trade with Economic indicators

Let’s get some Background.

• What Are Some Economic Indicators?

Economic Indicators are, usually, DATA sets that give a reading/pulse-check on the different segments of the economy.

Economic Indicators are published regularly by official governmental departments, (mostly The Bureau of Statistics, which collects and compiles the data), and by Private Financial Institutions/Companies that provide this service, free or at a cost. (i.e. Markit, S&P as well as various banks commissioned to do so).

Economic Indicator Data Types

Why are Economic Indicators important for Investors and Traders?
Economic Indicators can be categorized as follows:

• Supply Side Indicators – These indicators give a pulse check on the state of the supply chain (i.e. the supply side of the equation). These indicators include the PMI (Purchasing Managers Index), PPI (Producers Price Index), Industrial Production, and Durable Goods Orders.

• Demand Side Indicators – These indicators give a pulse check on the household consumption side (i.e. The Demand side of the equation). These indicators include CPI (Consumer Price Index), Retail Sales, Housing Stats, Home Sales, and Consumer Sentiment.

• General Economy Indicators – These indicators give an overall reading of the economy. These indicators usually combine both the supply side and the demand side to reflect on the entire economy.
  These indicators include GDP (Gross Domestic Product), Trade Balance, and Labor Market reports i.e. (Non-Farm Payroll: Jobs reports.)
• 
• Indicators, in general, are very helpful as they could be used, to alert in case of looming danger and be informative to the beholder for possible actions or omissions. Just like the traffic light/Traffic Robot.
• Since Financial markets follow the expectations or hypothesis, traders & investors will be prudent in re-assessing their positions, given any new information/data that deviates from their expectations. If the data exceeds their expectations, they may be caught too “bearish”, and if the data misses their expectations, they may be caught too “bullish”.
• Different data sets have different impacts on the market. Some data releases could have a more profound impact on the market (for example labor market data, GDP, and CPI), while other data releases will have a limited impact on the market.

Economic Data Paradigm

• 1st Tier Data Type:
• PMI (Purchasing Managers Index),
• PPI (Producers Price Index),
• Industrial Production, &
• Durable Goods Order

• 2nd Tier Data Type:
• CPI (Consumer Price Index),
• Retail Sales
  Housing Stats/Home Sales
• Consumer Sentiment.

• 3rd Tier Data Type:
• GDP (Gross Domestic Product), most of the time under 1st Tier.
• Trade Balance,
• Labor Market reports, i.e. (Non-Farm Payroll, Jobs reports)

How to trade on Economic Data release?

• Assess the importance of the data and the degree of volatility the report could generate.
• If this is important economic data (1st tier data), do your homework and establish your own view on that economic data (is the market over/underestimating the outcome?)
• Expect a knee-jerk reaction should the data deviate significantly from market estimation (either exceeding or missing).
• The trade is a relatively short-term trade, so you could capitalize on the initial reaction of the market to the release.

The End Game

As one master, how to take their cue from the various economic indicators, it becomes clearer how to limit exposures to unforeseen risks, leading to an increased percentage of positive ROI.

Try this out and practice on paper if you have to, then those with a Demo or practice accounts enhance your skills. This is a MUST in my view. This could be an awesome simulation opportunity.

Make good use of those funds from any credible platform that permits it. Increase knowledge of the markets & trading strategies.

Share & Like
Get More Insights:http://www.mercer-wood.solutions