After doing a lot of technical analysis, you might start to notice price patterns in the charts. Periodically, these repeating rises and falls break pattern unexpectedly and cause traders to make an incorrect choice. Perhaps you've already experienced this. Is there a cause that can be accounted for?
Very often, important economic releases break up these patterns, but performing a daily fundamental analysis can help avoid these flawed forecasts. Coming up this week is the US Retail Sales Report. Here’s what the report indicates and how to use it to trade better
What is the US Retail Sales Report?
The U.S. Retail Sales Report is a monthly indicator of US retail performance, published by the US Census Bureau. The Census Bureau surveys almost 5000 US companies, gathering retail sales data. These monthly reports include the total sales for the previous month and also show the percentage change for each month.
The Retail Sales Report indicates consumer spending trends, which is a route factor that influences a nation’s economic health. If the population is spending, it means that economic sentiment is positive. Positive sentiment usually occurs when employment and interest rates are at a good level. The importance of the report influences how traders react, and those reactions influence the price.
How to measure the US Retail Sales Report
There are two numbers to consider. The previous level and the forecast. In the case of the Retail Sales Report (MoM), the previous figure was -0.2%. Then there’s the forecast, which is currently 0.7%. As you can see, there’s been a rise in retail spending. While this is noteworthy, it is hard to use this information when setting your orders.
Always consider past and current levels, but the real power of prediction comes with the official forecast. The current forecast for retail sales shows 0.7%—a slight increase. If the actual update on Friday, June 14, 2019 (08:30 GMT -4:00) matches the forecast, then don’t expect any major movement. However, if the reading shows higher than expected levels, expect a bullish USD. If the update far exceeds the forecast, then expect a serious price spike and some potential profit for Buy orders.
When to trade on an economic release?
When a nation releases its economic figures, the market tends to explode and prices swing wildly. As a trader, you have two choices when it comes to entry times. Either you set your order before the news release and sit at the ready, or you wait till the volatility subsides and pick up the scraps.
Trading before the release
Let’s say you believe in a positive forecast and decide to Buy USD. When the nation releases the figures, the market price can spike in either direction. The spikes can be sizable and often demolish newbie accounts that are not properly set up. Make sure you have plenty of equity in your account and consider using lower leverage settings for such trading events.
Since the spikes are rapid and usually short-lived, you might try setting a very generous Take Profit. Stop Loss can be tighter. FX News recommends you babysit the order, meaning you sit and watch the price moves in real-time. If the price falls, your Stop Loss will protect your Buy order. If you chose right but the rise isn’t strong enough to trigger your Take Profit, then consider manually closing the Buy order at the best possible moment.
Trading after the release
Let’s say you wait until the dust has settled. After the initial price move, there is an after effect on the price. The fluctuations are much smaller, making profit potential less attractive. Leverage can help multiply your profits, but it will also multiply the risk.
Trading before an economic release means you have a forecast to guide you when setting your orders. The price moves are volatile, offering higher profits but also more risk. Alternatively, trading after a release is problematic. Price direction no longer conforms to the forecast, and anything can happen.
When using the Retail Sales Report for forecasting, consider holiday sales and popular celebrations such as Christmas, Valentine's Day, Mother's Day, Father's Day, and summer break. Adding such influences increases your trading performance significantly, so it’s worth the extra hour spent researching. Only when you are convinced by all the indicators should you make a trade.
Test your analytical skills on a risk-free demo account first
Not sure how to get started? No problem. Follow this step-by-step guide.