Introduction
If you are somewhat familiar with investing and trading, you undoubtedly already had contact with indicators. Many inexperienced traders solely focus on Technical Indicators used in Technical Analysis to predict price changes of one asset based on current trends or technical patterns in the charts.
There are other categories of indicators, as well. In this article, I’d like to introduce you to a simplified model of the financial markets, a theory that is built on top of that model, and two indicators that give you an (albeit imperfect!) crystal ball to provide you with a clearer picture of the economic conditions in the future.
Instead of Technical Analysis, we look into the methodology of Fundamental Analysis. Economic indicators measure the current state of economies and allow the prediction of growth (or shrinking) of industry sectors, regions, or even the global economy.
Economic Backdrop
Let’s start with building a simplified model of financial markets. Like every model, it simplifies the real world but should allow valuable forecasts for the future.
The movements of financial markets on very short timeframes (seconds, minutes, hours) seem entirely random. We can identify phases where markets move up and down in cycles on higher timeframes…
