Indicators, especially macroeconomic ones, are critical in evaluating possible future market movements. Understanding and tracking the most important financial indicators is key to the success of both trading and investing. Investors need to know about inflation, interest rates, GDP, and others to define if a stock or currency they are going to invest in is going to be profitable in the long term. Below, we will discuss all essential indicators that every investor should be watching.
Investing vs trading
Let’s first differentiate between traders and investors and why financial indicators are important for both of them. Using macroeconomic indicators for future price trend predictions is called fundamental analysis. Traders look for price changes in short to medium periods and are using fundamental analysis and technical analysis combined for maximum results. Fundamental analysis is based on macroeconomic indicators that affect financial markets the most. Investors on the other hand focus on longer terms and barely ever use technical analysis for investing. They mainly rely on macroeconomic data to predict long-term trends.
Popular technical indicators every trader must know
Traders open positions to gain quick profits for days or sometimes months, while investors buy and hold assets for more than a year. Traders also employ technical analysis by using technical indicators like moving averages, Relative Strength Index, and others to analyze charts. These indicators are mathematical algorithms that use price as an input to show different statistics about price. Since traders are short-term speculators, they use short-term price data like 1 hour or even 1 minute. Top trading indicators include
- Moving averages – they follow prices and show average prices for a past period. The moving average shows average prices and its slope indicates the overall trend direction. Moving averages are trend indicators.
- Relative strength index – Developed by J. Welles, the RSI oscillator measures the speed and change of price movements. RSI indicates when prices are oversold or overbought, and traders use it to define if the price is about to reverse.
- MACD – moving average convergence divergence or better known as MACD is another trend-following momentum indicator showing the relationship between moving averages of the price of the asset.
Traders reading this article can read about the best moving average for a 1-minute chart in FX trading to improve their decision-making. These indicators combined with strong fundamentals can increase trading results many times.
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What are macroeconomic indicators?
Macroeconomic indicators are statistical benchmarks that are used by traders, investors, governments, and businesses to assess how healthy an economy is. Some indicators are used to measure specific sector performance and analyze its potential direction, while others measure the heartbeat of the whole country. These metrics offer investors and traders the ability to make wise and informed decisions. Here we collected the most critical indicators that have the highest impact on prices and economies.
Top macroeconomic indicators every investor must know
GDP or gross domestic product
GDP estimates the total value of goods and services produced in a country for a specific period. It serves as a critical indicator of economic activity and growth. Reducing or slowing the GDP may be a sign of a recession and can’t be taken lightly. Thereby, a positive or negative GDP growth affects prices and trends in financial markets like Forex, stocks, etc.
Measuring the rate at which prices of goods and services increase or decrease over a specific period is inflation’s main definition. Inflation affects the economy on a wide scale, but the immediate effects of increased inflation are felt by people more painfully. When prices are increasing for essential goods and services, it affects whole nations very negatively. It has the potential to affect prices dramatically. Inflation is generally measured by using the CPI or Consumer Price index and is the main indicator of the cost of living and purchasing power of consumers. Higher-than-expected inflation makes currency lose its value against other currencies. Because of this, it is a good indicator for future trend predictions.
The fraction of the labor force that is unemployed and is actively searching for work is measured by the unemployment rate. It’s a crucial gauge of the state of the labor market and the economy as a whole. The unemployment rate affects prices in financial markets, especially on Forex pairs. When there is a low unemployment rate, it indicates that the economy is healthy, and it affects currency positively.
Another critical metric in defining the future trends in the medium to long term is interest rates that are defined by central banks. The cost of borrowing money has a tremendous impact on the economy. Changes in interest rates can have an impact on inflation, company investments, and consumer spending.
The sum of money that a government owes to its creditors is known as the national debt. Government debt is a crucial component of a nation’s financial stability and capacity to pay for public programs and services.
These metrics are combined with other economic information to provide a complete picture of a nation’s economic performance.
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Summing everything up
The usefulness of financial indicators for investors and traders in assessing potential future market movements can not be underestimated. Investors and traders may use the macroeconomic indicators slightly differently, but the main idea is to aim at determining what the direction of a market will be in the short and medium term for traders and the long term for investors. Traders use technical analysis to determine future price trends, while investors rely on fundamentals alone. Macroeconomic indicators are statistics-based benchmarks that measure the country’s economy’s performance. The key macroeconomic statistics such as GDP, inflation, unemployment rate, interest rates, and national debt, are among the top indicators that are widely used by investors and traders alike to make wise decisions about possible price trends.
Investors and traders are very sensitive to macroeconomic data and use it in their trading and investing activities.