Data That Moves the Markets
The First Step in Your Analysis
Leading [economic] indicators are like brake lights on a car ahead of you on a highway. When they light up, you don’t know whether the other driver is tapping his brakes or slamming them! You have to be extra careful when putting on trades using solely leading indicators.
—Alexander Elder Trading for a Living
You might be thinking that this is supposed to be an options book, so why are we worried about data that moves the equity and debt markets?
Remember that before you choose which option strategy you are going to apply, you must first form a thesis on the underlying security; to that end, you must be aware of any other (economic) forces that might be pushing and pulling on the marketplace, beyond what is going on with the security (stock) itself. Every option derives its price from a security, so if you are going to trade options, you must understand and have an opinion on the security first.
This chapter explores the larger macro forces that influence the markets. From the information you gather from macro data, you are better able to form your individual stock thesis and strategy. Having knowledge of upcoming events will help you tailor your risk more appropriately.
I like to work from the outside in, meaning that I want to get a gauge for the macro climate, then work my way into the company fundamentals, and technical, and finally make a decision on a strategy once I have completed my research.
The good ...