The economy is essentially restless and therefore, predictions of any sort are extremely difficult to be made without some tools that will help stock traders and investors with their decision making process.
Economic indicators, such as inflation rate, Gross Domestic Product (GDP), or PPI, are important statistics that provide a rough picture of the state of the economy and consequently affect investors’ predictions about their investments. Economic indicators constitute pieces of a big puzzle that have to be put into some context in order for the investor to: a) make optimal decisions regarding investments and asset allocation, b) evaluate government’s economic policies, c) compare the state of the economy among different countries and d) determine the optimal time to make a new investment or cash-out. Therefore, knowing how to interpret and analyze these indicators is essential for the success of any investment decision.
It is very important to note that the predictive power of any specific indicator stems not from the information provided by a single observation, but from the information that is contained in the evolution of the indicator through time, which reveals trends that stock traders and investors can exploit. There are also cases, where the actual importance of a given indicator becomes apparent only in conjunction with other indicators.
Economic indicators are categorized according to three primary attributes:
1. Their relevance to the economy as a whole: The indicator can be “pro-cyclic”, “counter-cyclic”, or “acyclic”. “Pro-cyclic”, means that the indicator moves in accordance with the economy, “counter-cyclic”, means that it moves in the opposite direction from the economy and “acyclic”, means that the movement of the indicator and the movement of the economy have no or very little relevance.
2. Their timing in relation to the business cycle: Leading indicators are indicators that change in advance of changes in the economy as a whole. They are therefore valuable predictors of the economy and useful for stock trading decisions. An example of a leading indicator is the Index of Leading Indicators published by the Conference Board. Lagging indicators are indicators that change after the economy as a whole does. The unemployment rate and the CPI are examples of lagging indicators. Coincident indicators change at approximately the same time as the whole economy, thereby providing information about the current state of the economy. Some examples of coincident economic indicators are industrial production, personal income and manufacturing sales.
3. Their frequency: Indicators are published at different frequencies. Some indicators, such as the S&P 500 closing price, are published in daily basis, others, like unemployment rate are published monthly and indicators, like the Gross Domestic Product, are published quarterly.
In the articles of the Economics Category, we will analyze some of the most important economic indicators. After reading the articles, you will be able to interpret most of the economic indicators correctly and learn what they can tell you about the state of the economy and the prospects of your investments. A thorough understanding of these concepts will help you make better investment decisions and therefore improve your stock trading records.
StockTradingCollege.com, Stock Trading and Investing for Beginners
Economic indicators, such as inflation rate, Gross Domestic Product (GDP), or PPI, are important statistics that provide a rough picture of the state of the economy and consequently affect investors’ predictions about their investments. Economic indicators constitute pieces of a big puzzle that have to be put into some context in order for the investor to: a) make optimal decisions regarding investments and asset allocation, b) evaluate government’s economic policies, c) compare the state of the economy among different countries and d) determine the optimal time to make a new investment or cash-out. Therefore, knowing how to interpret and analyze these indicators is essential for the success of any investment decision.
It is very important to note that the predictive power of any specific indicator stems not from the information provided by a single observation, but from the information that is contained in the evolution of the indicator through time, which reveals trends that stock traders and investors can exploit. There are also cases, where the actual importance of a given indicator becomes apparent only in conjunction with other indicators.
Economic indicators are categorized according to three primary attributes:
1. Their relevance to the economy as a whole: The indicator can be “pro-cyclic”, “counter-cyclic”, or “acyclic”. “Pro-cyclic”, means that the indicator moves in accordance with the economy, “counter-cyclic”, means that it moves in the opposite direction from the economy and “acyclic”, means that the movement of the indicator and the movement of the economy have no or very little relevance.
2. Their timing in relation to the business cycle: Leading indicators are indicators that change in advance of changes in the economy as a whole. They are therefore valuable predictors of the economy and useful for stock trading decisions. An example of a leading indicator is the Index of Leading Indicators published by the Conference Board. Lagging indicators are indicators that change after the economy as a whole does. The unemployment rate and the CPI are examples of lagging indicators. Coincident indicators change at approximately the same time as the whole economy, thereby providing information about the current state of the economy. Some examples of coincident economic indicators are industrial production, personal income and manufacturing sales.
3. Their frequency: Indicators are published at different frequencies. Some indicators, such as the S&P 500 closing price, are published in daily basis, others, like unemployment rate are published monthly and indicators, like the Gross Domestic Product, are published quarterly.
In the articles of the Economics Category, we will analyze some of the most important economic indicators. After reading the articles, you will be able to interpret most of the economic indicators correctly and learn what they can tell you about the state of the economy and the prospects of your investments. A thorough understanding of these concepts will help you make better investment decisions and therefore improve your stock trading records.
StockTradingCollege.com, Stock Trading and Investing for Beginners