GDP Definition

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Video Transcription:

Hello Traders. Welcome to the Newest Trading Course and the Third Module, “News That Moves the Market”, profitably enough for us to trade.

In this lesson, I’m going to talk about the Gross Domestic Product or GDP and I’m going to teach you how to trade.

As you may know, the GDP calculates or measures the monetary value of an entire economy and it is calculated only once per year. The part that we are actually going to be training are preliminary releases of the GDP. These preliminary releases are events that occur on a quarterly basis.

GDP Definition

Let’s start by defining what the GDP is. The GDP is the monetary value of all the finished goods and services produced within a country. It includes both private and public consumption, government outlays, investments and exports less imports, which is the trade balance. The GDP is used as an indicator of the economic health of a country as well as the metric of standard of living. The higher the GDP, the healthier the economy, the higher the standard of living is in that specific country. Since the GDP is calculated annually, the event that we are going to trade or the GDP price index or preliminary GDP report quarterly. Now that we are all on the same page the GDP is calculated annually, but we are going to be trading the preliminary releases every single quarter. And remember that we can trade the US GDP, the Japanese GDP, the Aussie GDP, etc.

Understanding the GDP

A better than expected reading should be taken as positive or bullish for the currency and this is logic because the higher the GDP, the better or the healthier economy is thus the more value the currency takes. And the worse than expected reading should be taken as negative or bearish for the currency. GDP is a pretty straight forward event, but we need to understand what lays behind it and how we are going to interpret these numbers, how we are going to read it and trade it before actually going to the charts and showing you how to trade it.

The GDP calculates the monetary value of an economy. A bad reading would mean that the country is producing and consuming less products and services. Since the GDP calculates the entire products and services produced by a country, a bad reading would mean that the country is producing less than last year and this can be because there are less jobs or a high unemployment rate, thus less money to consume. Or it can be because consumers don’t see a bright economic future and are prone to savings or to save money rather than spend it.

There is a lot of theory going on behind the GDP but what we need to understand that higher than expected reading is good for the currency and that the worse than expected reading is bad for the currency. We are never going to front runners. That is a point that I make on every single video. The GDP releases are very straight forward event and an increasing volume will bring large moves in a short period of time.

We have to be prepared with our pending orders and corrections and consolidations because we are going to use all of what we have learned so far to trade these events. The reason we are going to use both corrections and pending orders is because this is an event that brings a lot of volume into the market and we are going to take advantage of those very short term traders that take profits too soon and because of that profit taking, we are going to have immediate corrections that we are going to profit from and we are going to add to our proceedings.

Adam

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