Hello All, Can anyone recommend a book or other learning resource that presents the basics and fundamentals of economics and how they relate to the markets? Having studied Computer Science and Mathematics, I continually find myself frustrated with my basic ignorance. Example: I was reading Wilmott's Introduction to Quantitative Finance. Therein, he presents the the time value of money (TVM), "the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity." I am embarrassed to say that this was news to me! ..and again this morning, reading Currency Wars by Rickards, he presents the basic GDP calculation: GDP = C + I + G + (X - M) Again, news to me. I need something that will walk me through the Economics and Market foundations that underpin price movements in the market. Any advice? Thanks in advance. --Keith
TVM makes a few assumptions that don't always hold like negative interest rates. It's better to recognize that inflows and outflows are best simply modeled with geometric series or better yet that geometrically. The GDP identity was developed by Keynes in his General Theory. Marshal is the basis of microeconomics, the familiar suppy & demand. And so on.
Ignorance of economics may be a good thing for a trader. As you get to see market movements unfiltered by your economic beliefs.
There is this thing out there, called The Interwebs which has this spot called The Youtube which has people like my favorite Uncle Milty: You could do worse than that. But as well, should you wish to go further, there are entire semester classes recorded, from such sterling institutions as Yale, MIT, Hah-vahd, Stanford, Michigan, and some wonderful stuff from the various UC campuses. Econ, finance, options markets and portfolio management, and the associated math. (Also, how to fix a washing machine, how to diagnose hydronic boiler issues, various methods to replace the freaking sparkplugs in the dang Subaru, how to open crappy Sentry safe (a redundancy and a lie, in one), -- all sorts of things.) And if you're *really* lucky, you might get twisted into You jus' don' know. Til you look.
There is not a direct relationship between knowledge and trading profits. I feel that once successful in trading, out of personal curiosity and for the mental challenge, yes, it would be interesting to extend knowledge of the financial sector and economics. But it won't lead to increased profits. No more than would study of grammar be necessary for fluency in a second language.
For what reason? To become a better trader? The good news is these will help anyone zero to become a better trader, jesting not. The markets move in waves (trends) and most are non related to each other, they do not move on news (as many believe), most are unsynchronised to each other, they run at different times at different speeds, acceleration, volatility and frequency. No economic book will spell anything out about a method using economics to be a better trader. One month for example the Nasdaq will run up along with copper, next month Nas may continue its run and copper (or any other index) may begin falling. Although usually NAS, DOW & SP500 work closely in synch but nothing in economic will teach anyone when to enter, hold or exit. Trading is difficult to master to many because the logic of it runs countertrend to normal human logic. Edit: those who wish to debate the point re markets and news, well the fact is, the news moulds itself around the market, not vice versa, eg, AFTER for example oil begins to trend up, the news bulletins all have their logic why oil is rising, oil for example will begin to rise at the point the news bulletins are all broadcasting doom & gloom.
Investments by BKM is standard MBA finance textbook Expected returns by Antti Ilmanen maybe the best book which came out in last decade. This book is the practical book which connects fundamentals to trading. Most of the macro-bets is the valuation bet, but still considered as trading. Soro's is considered as one of the great traders. His famous bet of pound cannot be placed just by price action. Same with EUR/CHF, price action doesn't tell the whole story. Trader's who placed long term bets on housing crisis understood some underlying macro issues, which is not reflected in price action. But for short term trading, most of the fundamentals can be thrown out of the window.