Learn to read between the lines to make better trades

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Learn to read between the lines to make better trades

So, you’ve got the trading bug. You’ve made your first profits – albeit modest – by making safe trades. Understanding how markets behave will help you to make better trades. There are riskier trading strategies that can earn bigger profits but the risks are too great. 

What do top traders do?

So how do top traders end up making so much more money? 

It’s not by taking bigger risks but by learning to read between the lines to make better trades.

Profitable traders earn more because they’re better at predicting and understanding how markets react to news and economic data. They read between the lines of the constant stream of information that is available on trading platforms to make more profitable judgements. 

The best traders use information to make a trade before the trend is visible to others. For profitable traders, breaking news stories and economic data is information to be deciphered into factors that can affect the market. 

It’s not easy. If it was, everyone would do it. It’s actually far from impossible and can be learned. Understanding economic performance and what affects it is an area where profitable traders excel. 

The examples below demonstrate the importance of being able to translate data and news into something meaningful. 

Example 1

Gross Domestic Product (GDP) is one of the key indicators used to gauge how a country’s economy is performing. 

During the last recession in the US, the economy’s GDP was $14.3 trillion (2008), $14.2 trillion (2009) and $14.6 trillion (2010). 

During one of the worst economic periods in recent history, the US economy was actually flattish and very slightly growing. However, it felt a lot worse and to most people, it probably felt like it was shrinking. 

So why was there a disparity between perception and the economic indicator? The answer is that America has been accustomed to growth. Since 1945 the US economy had averaged 3.3% growth per year. Small changes in GDP can have a huge impact on stock market values. 4% feels like a boom and is reflected in consumer sentiment. 2% growth feels like a recession and flat conjures up bleak, black and white newsreel from the 1930s. 

Any GDP figures above the 3.3% average triggers investors to pull their money out of safe havens, employers start hiring and consumers start buying. Anything less than the 3.3% average triggers negative reactions. 

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