How to Trade the US Retail Sales: A Comprehensive Guide

Introduction

The US Retail Sales report provides crucial insights into consumer spending and the overall health of the economy. This guide will share the exact strategy that professional traders use to profit from market movements. By following our step-by-step guide, you’ll learn how to level the playing field and effectively trade the US Retail Sales report.

Understanding the US Retail Sales Report

The Retail Sales report, released monthly by the US Census Bureau, measures the total receipts of retail stores. It includes data on a variety of categories, such as food and beverage, clothing, and automobiles, providing a comprehensive look at consumer spending trends.

Why the US Retail Sales Report Matters

Why the US Retail Sales Report Often Moves the Market

Core vs. Headline Retail Sales

Understanding the difference between core and headline retail sales is essential for interpreting the data correctly and making informed trading decisions.

Why the Distinction Matters:

Understanding the difference between core and headline retail sales is essential for interpreting the data correctly and making informed trading decisions.

Trading Strategy for US Retail Sales

Step 1: Analyze Federal Reserve Priorities

The first step is to understand what data points the Federal Reserve is currently focused on. If the Fed is focused on consumer spending data, then the Retail Sales report will have a significant amount of volatility because the Fed is in some way basing its interest rate decisions on that data release. To quickly determine the Fed’s current focus, you can use our Professional Economic Calendar, which includes a fundamental guide. This resource helps traders stay updated on the data points that matter most to the Fed, providing a strategic advantage.

Step 2: Use High-Low Expectation Forecasts

Professional traders rely on high-low forecasts to gauge market expectations accurately. Here’s a more detailed look at why these forecasts are crucial:

Understanding High-Low Forecasts

Economic forecasts are derived from surveys of credible institutions, each providing their best estimate on upcoming data points. Retail calendars typically present the median of these estimates, which can be misleading. The median forecast doesn’t reveal the full range of expectations and, therefore, doesn’t indicate how surprising an actual data release is compared to the extremes of analysts’ projections. In contrast, professional economic calendars include both high and low estimates. This additional information shows the analysts’ expectations at the extreme ends of their projections. Great trading opportunities arise when data releases fall outside these high and low estimates, creating market shocks that move prices significantly.

Step 3 - Choosing the Most Volatile Instrument to Trade

This report details hedge funds’ positions; if a lot of big players are long the EUR/USD but then data comes out in favor of the USD, some of those funds might have to unwind their positions leading to an outsized move. Good thing you didn’t trade the GBP/USD.

Trade Execution Steps

  1. Confirm Fed Focus: Ensure the Federal Reserve is currently emphasizing consumer spending data. If consumer spending is a primary focus, the US Retail Sales report will have a higher likelihood of moving the market. Remember, if the central bank is focused on the data point, it’s because they are using that data point to make a decision on rates. This is the reason data points that are focused on cause volatility.
  2. Check Forecast Ranges: Before the data release, review the high and low forecast expectations for the event. Plan to trade only if the actual data significantly exceeds the high estimate or falls below the low estimate. This strategy ensures you act on genuinely surprising data and there will most likely be a follow-through reaction.
  3. Monitor Revisions: Check for any conflicting revisions in the data, as these can alter the initial market reaction. Make sure the primary release and any revisions align to support your trade.
  4. Enter Trade Promptly: Once you confirm the deviation, act quickly to enter your trade. Enter within the first 30 seconds. Speed is crucial, as market reactions to significant data surprises happen rapidly.
  5. Set Stop and Take Profit:
    • Stop-Loss: Place your stop-loss below the low of the initial spike candle to protect against adverse movements.
    • Take Profit: Aim for 30-100 pips for tier one events like the US Retail Sales report, adjusting based on market conditions and volatility. (Note: For tier two events, aim for 15-30 pips.)

Managing the Trade

Conclusion

While the US Retail Sales report may not always lead to significant market movements, understanding its nuances and using a professional trading strategy can help you capitalize on unexpected deviations. If you don’t have the tools mentioned above, try out our Professional Economic Calendar Package and use institutional tools to level the playing field. By following these steps, you’ll be well-prepared to trade the US Retail Sales report effectively, leveraging the same strategies that professional traders use to profit from this economic data release.

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