Something Interesting in Financial Video July 2013 - page 7
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An overview of the US Economy and the first two components of the economy which are natural resources and the labor force. Explanation meant for traders of the forex, futures, and stock markets.
In our last lesson we gave an introduction to fundamental analysis with an introduction to the top down approach to analyzing fundamentals and the US Economy. In today's lesson we are going to expand our discussion on the US economy by looking at the different pieces which make up the economy and how each piece is relevant to us as traders of the stock, futures, and/or forex markets.
The first component of any economy is its natural resources. One of the key factors that allowed the United States to grow so quickly and become one of the world powers that it is today, is that it is a land that is rich in natural resources from oil which drives our industry, to lumber to build our houses, to our large coastlines, great lakes, and rivers which provide shipping access and move goods throughout the country.
Understanding what natural resources are most important to a country and understanding what affects the prices of those resources is beneficial to not only commodities traders who trade the actual commodities such as oil and gold but also to traders of the stock and forex markets. We will go into these correlations in more detail in later lessons but a short example is that the US economy relies heavily on oil, so when the price of oil goes higher this is normally seen as a negative for the US Economy as it then costs more for companies to ship their goods, and for individuals to fill up their cars leaving them less money to spend. Similarly, as the US Imports much of its oil, when the price of oil goes up this means that more dollars are being sold and converted into the currencies of the countries which are exporting the oil to the US, therefore all else being equal weakening the US Dollar and strengthening the currency of the exporting country.
The next component of any economy is its labor force, or the individuals who are working in that economy to produce goods and services from the countries natural resources. As the labor force in an economy gets paid for their labor, and then spends that money on the goods and services they and other components of the labor force have produced, they are an important driver of growth in any economy.
The components which are watched in regards to labor are the size of the labor force in an economy, its rate of growth, its productivity level, and its skill level, and its mobility or ability to adapt to changing conditions. Another reason why the United States has the largest economy in the world is the size of its labor force is constantly growing allowing the economy to produce and sell more goods and services, it is a relatively mobile labor force which has allowed it to increase productivity faster than other nations through things such as early adoption of new technology, and it is an educated labor force.
Why is this important from a trading standpoint? Here again we will go into more detail on this when we look at important economic numbers but a short example is if the labor force becomes more productive, this means that they are able to produce more goods in the same amount of time. This not only makes companies more profitable but it holds down prices for the consumer, giving them more money to spend on other goods and services, which drives growth, which means a higher stock market all else being equal. This increased growth can cause higher demand for commodities therefore causing the commodities markets to rally all else being equal, and can also have interest rate implications, something we will learn about in later lessons, which can affect the US Dollar.
A lesson on the second two components of the US Economy the Private and Government Sector and how these each affect forex, futures, and stock traders.
In our last lesson we began a discussion on the different components that make up the US Economy and how these relate to trading with a look at the Natural Resources and Labor Force components. In today's lesson we continue this discussion with a look at the Private Sector and Government components and how each of these relates to trading.
While having lots of natural resources and a large well educated labor force to produce goods and services from those natural resources is a great thing, without a way to organize these first two components of the economy, not much would get done. This is where the small, medium, and large businesses which make up the private sector come in. In addition to organizing the labor force to produce goods and services, the private sector is also responsible for raising the capital necessary to bring all these things together which they do through private investors, loans from commercial banks, the bond market, and/or the equities market.
While many people think that the US Economy is dominated by the large corporations, it may come as a surprise the large role that the small business play's in the US Economy. According to the US Department of State:
"Of the nearly 26 million firms in the United States, most are very small—97.5 percent ... have fewer than 20 employees," the U.S. Small Business Administration says. "Yet cumulatively, these firms account for half of our nonfarm real gross domestic product, and they have generated 60 to 80 percent of the net new jobs over the past decade."
While we will go into more details about the private sector and how this all relates to trading in later lessons, it should be obvious at this point the large effect that the private sector has on all markets as they are the ones who: 1. Raise capital through bonds and stocks that we then trade, 2. produce the goods and services which drive demand for the commodities we trade and 3. Affect the foreign Exchange markets by playing a role in what goods and services are produced domestically, which we import from overseas, as well as cross boarder mergers and acquisitions.
Overbought and Oversold levels
Overbought and Oversold levels what they mean, how to trade them.
The basic points in the video are as follows:
1. When markets break a trendline after forming three steepening trendlines, a larger reversal may be in the works
2. Look for confluence with candlesticks and horizonal support/resistance levels after a trendline breaks
3. Enter on a re-test of a trendline or a broken support/resistance level
4. When there are 3+ trendlines and the market starts to reverse and break each one, pullbacks will likely be steeper after each subsequent break of a trendline
Interview With Walter Peters
This is our full-length interview with trader and fund manager Walter Peters, in which we discuss how he get started with trading forex; how he found consistent profitability as a trader; and why he encourages traders to study price action first and foremost, among other topics.