How to Trade Retail Sales

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Video Transcription:

Hello traders. Welcome to the news trading course and the third volume, News that Moved the Market Profitably Enough For Us to Trade. In this lesson, we are going to talk about retail sales and core retail sales. And these event is very important because when this number comes out, it accounts for the change in the overall expenditure of consumers in an economy. But first of all, we are going to start by defining what retail sales is, then we’re going to go through why this release is so important. and then finally, how we are going to trade it.

So this number represents the change in the total value of sales at the retail level. This is the earliest outlook of vital consumers’ spending data. Now, this is important and this is why retail sales are important. As you already know, consumer spending accounts for the overall maturity of the economic activity in a country, so this number represents the change month over month of the total value of the sales retail level, which means that it accounts for the overall change in consumer’s spending month over month. So if we have a rising retail sales, we have a rising consumer spending, and if we have a plunge in retail sales, we have a plunge in consumer spending.

So this number is very important and closely looked by traders because it’s the primary gauge of consumer spending. And consumer spending accounts for the overall economy or the overall economic activity. Now, the difference between retail sales and core retail sales is this. Core retail sales is a better gauge of the overall retail spending because it doesn’t account for automobile spending. The reason that the core retail sales is a better gauge of overall retail spending is because even though automobile spending accounts for at least 20% of the overall retail spending, automobiles are very highly priced goods and they are not as renewable as the daily consumer goods that the core retail sales accounts for. And because of that, it can be very volatile and distort the underlying trend.

So when we have core retail sales and retails sales, we are going to focus on core retail sales. But of course, if you only have a retail sales schedule on the economic calendar, we are going to trade that event. Now, how are we going to read this number? Well, that’s easy. When we get a better than expected retail sales number, it means that consumers are spending more and saving less because they have a better outlook on the economy.

If consumers have a better outlook on the economy or a better view on the future of this country’s economy, they are going to be saving less and spending more which means that this country is going to be more dynamic or the economy is going to be more dynamic and overall healthier and in a country where the retail sales plunge is considered negative for the currency because consumers are spending less in a more negative view of the future of this economy.

Basically, this is why retail sales are so important and why they bring so much volume to the markets once they are released. And how are we going to trade this announcement or this economic event? First of all, we are never going to front run it and we are never going to trade it based on forecast on the economic calendar. We are going to wait for the release of the number and then we are going to trade it. The retail sales will bring heavy volume into the market and we can expect moves up to 100 pips. You’re going to see that on the example that we are going to go through, we have a 80 to 85 pip move which would have made for a nice profit on a very short trade.

Since this is a very straight forward release, we are going to use pending orders to traders. And because of its large moves, we are also going to trade corrections and consolidations when they appear. Remember that we are never going to trade corrections to our entry point or consolidations that are close to our profit targets.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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