How to Master Macroeconomic Analysis as a Trader – Introduction
As a trader who has been in this business for years, I have seen it all. I was around when the stocks collapsed in 2008/9. I was hear during the 2010 flash crash, and I was here during the rally that followed the crisis. I have seen it all.
In all this, from a broad perspective, there are two major reasons why financial assets move up and down. There are fundamental factors like the economic growth and jobs numbers and there are technical reasons. How do you as a trader perfect the art of doing quality macroeconomic analysis?
The first thing you need to do is to look at the bigger picture. In this, you should always start a macroeconomic analysis from the top. For example, if you want to do a good analysis about the American economy, you should start by looking at the historical growth of the country. By looking at the historical growth, you will be at a better place to understand the current happenings.
In this, you should consider reading books and opinions about the economy, its components, and the key challenges the country has faced.
After reading the historical details, you should now consider looking at the country’s current economic situation. As a trader, the most important thing you need to know about, past the crisis is on how the federal reserve sees the market. In this, you want to predict the pace of the normalization process. You can get a bigger picture by going to the website of the federal reserve and reading their comments and minutes from their meetings. By reading these minutes, you will be at a better place to understand how he officials think.
In your analysis, everything should always lead to interest rates. To better understand this, analysts use what is known as the Philips Curve. The Philips Curve gives is a theory that explains the relationship of jobs and inflation. The theory says that inflation tends to go up when the unemployment rate falls. The idea is that when more people are employed, they tend to buy more leading to increased inflation.
On the other hand, when inflation rises, the central bank tends to raise interest rates to contain it. By raising rates, the country’s currency tends to strengthen as more people buy the currency for the yields.
As a trader, you need to do the best you can to know and understand the economy of the countries you are trading in. For example, if you trade in the dollar, you need to have a good understanding about the American economy off head. You need to be prepared to answer a simple question about the unemployment rate of the country or the current inflation rate or the GDP growth. The same should apply to all the countries that you deal with on a regular basis as a trader.
Getting and mastering all this information is information is not difficult. Still, you should not put yourself under pressure to know everything within a short period of time. It will take time for you to grasp all this. The key is to have interest and follow all the news as it breaks.