There are many leading economic indicators that could affect trading investments. Majority of which needs thorough study and if you are a new trader, this is something that you must learn in order to make your investments more profitable.
Most traders focus their attention on the economic indicators that have a direct and very predictable impact on the value of the global currency in the stock market.
Gross Domestic Product (GDP)
GDP is the total value of all goods and services produced during the reporting period and are used to measure economic inflation. This makes GDP one of the most influential from the many economic indicators that could affect trading investments.
Consumer Price Index (CPI)
This economic indicator is not so new to traders. It is basically calculated as an index based on a starting value of 100. A CPI of 150 means that it now costs 50 % more to purchase the same goods and services today than it did from the first determined index value. Continuous monitoring of the results would lead to foreseeable changes in consumer buying power and the effects of inflation as well.
Balance of Trade, mathematically, is the country’s exports minus its imports. When a country imports more than it exports, it results in what is called a trade deficit. The opposite of which is the trade surplus or a positive trade balance.
Do Trade Balance matters? It has a very huge impact on the economist, analyst and traders as well as it helps them understand the economic standing of one country in relation to others.
Producer Price Index (PPI)
PPI like CPI is also an inflation indicator that traces and monitors the changes in product prices in producers end. It is the index relative to 100 excluding all volatile items. Measuring the product prices in producers end could possibly project its effect to the consumer-level prices.
The most common indicator that has an immediate effect on currencies is Employment Reports. An increase in unemployment will affect the country’s economy because many will lose their source of income and thus will affect their spending habits. It will surely affect the financial market.
All Central Banks have their own policies on the interest rate which serves as the basis for the rate for commercial banks and other lending institutions. It is the Central Bank’s prerogative to increase rates during inflation in a bid to minimize the consumer’s spending habits and can reduce rates if the economy needs a boost to entice consumers to take a loan.
The interest rate is one of the major factors that influence the stock market exchange. Understanding the concept of interest rates and predict future changes could lead to a huge investment profit.
There are other economic indicators that could increase investment profit and so it is important to analyze all of them properly. In order to do so, you need to frequently update your economic calendar for you to have a view of the economic stability of a certain country.
Tips and Tricks to Make Your Investment More Profitable
With the help of these economic indicators, you can create a plan on how to double your trading investment. And if you are a new trader, there are some basic tips and tricks that you could use to execute your plans.
Start from knowing yourself as a trader by defining your goals.
It is a must that you have an idea of your destination and how you will get there. You have to clear up your mind, stay focused on your goal and know your trading style.
Each trading style is accompanied by a different risk profile. That’s why it is important to have a clear picture of the kind of style you will be using as a trader. On the other hand, you can also be a position trader where your mindset is to appreciate the value of your investment in an extended period of time. To choose between the two will depend upon your preference.
Choose a broker and trading platform carefully.
It’s more likely choosing your battlefield. You are the player here. You have to know the rules and policies of the broker and how they go about making a market. By knowing it, you’ll be going to play it just how you want it to be played.
After choosing where to invest, start trading.
The best trader doesn’t give a shot without a bullet. Before entering the market, every information that you will be needing to make a decision must have been understood. Some rely on the televisions, newspapers, websites or stock market charts to determine the best time to trade.
Ways to Invest
Calculate your Expectancy
Compare your winnings to your losses and determine if you have made a gain, loss or equal.
A formula is given to help you compute for your expectancy:
E = [1+(W/L)]xP1
W - Average Winning Trade
L - Average Losing Trade
P - Percentage Win Ratio
The Classic Way
This is simply called as “earning it slowly”. The best way to do this is to invest in a solid, non-speculative portfolio that's diversified between blue-chip stocks and investment-grade bonds. With the help of the old rule 72, it makes it easier to calculate how long it will take for an investment to double if its growth compounds.
The formula for this is:
N= 72/annual rate of return
N = number of years it will double
The Contrarian Way
This is called “blood in the streets”. Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family is credited with saying, "The time to buy is when there's blood in the streets."
Contrarians go against the crowd. They believe that bad times make them a good buyer. They opt to purchase stocks with the cheapest amount or the stocks that are not likely bought by many. But once these stocks reach the "point of maximum pessimism”, their prices will slowly go up and this will give an opportunity to Contrarians to double their investments.
The Safe Way
This can be quoted as “slowly but surely’. If you are a conservative trader, this might be the best for you. Invest in bonds, just like zero coupon bonds. Instead of purchasing a bond that has an interest payment, why not buy a bond at a discount to its eventual value at maturity?
The Speculative Way
This one involves stock options. Call and put options are derivative investments (their price movements are based on the price movements of another financial product, called the underlying).
This can be used to speculate on any company’s stock. There is a middleman such as a bank that is involved. This requires a great number of strategic skills to be able to double the money invested.
These ways cannot be effective enough without practice and discipline. No matter how perfect these ways are, gaining a profit or even doubling it still depends on you as a trader and on how you are going to play your bets.
You can never always win in a game. But if you win, then you have done the right amount of strategy and discipline. If not, go back to yourself and start asking “where did I go wrong?”. In that way, you will be able to know your weaknesses and strengths. These will give you a great advantage on your second bet.
Remember, everything successful starts with a goal equipped with the right amount of knowledge, discipline and strategy.