Retail Sales Definition

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Video Transcription:

Hello traders. Welcome to the news trading course and the third module news that moved the market, profitably enough for us to trade. In this lesson, we’re going to talk about retail sales and core retail sales. This 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’re going to start by defining what retail sales is, then we’re going to go to why this release is so important and then finally how we’re going to trade it. This number represents the change in the total value of sales at the retail level. This is the earliest outlook at vital consumer spending data. This is important, and this is why retail sales are important.

Retail Sales Definition

As you already know, consumer spending accounts for the overall majority of the economic activity in a country. So this number represents the change month over month of the total value of the sales at the retail level, which means that it accounts for the overall change in consumer spending month over month. So if we have a rise in retail sales, we have a rise in 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 a primary gauge of consumer spending. And consumer spending accounts for the majority of the overall economic activities.

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 for 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 retail sales, we are going to focus on core retail sales. But of course if we only have retail sales schedule or the economic calendar, we are going to trade that event.

Trading Retail Sales

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 the consumers are spending more and saving less because they have a better outlook on the economy. If consumers have a better outlook on the economic world or 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. On the contrary when 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.

So basically, this is why retail sales are so important and why they bring so much volume to the markets once they are released. 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’re 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 80 to 85 pips 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 spending orders to trade it. 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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