You must have heard of an anxiety index and, no, it doesn’t deal with psychiatry but the psychological reaction of individuals towards the economy.
Conventional or online stock trading is based on hard data as much as it is influenced by gut feeling and investor mood. The trading software helps with the hard data part, but to understand the mood of investors and people towards the economy, an anxiety index is something that can help you. As the name suggests, the anxiety index is an indication of an individual’s financial stress which in turn indicates the perception individuals have of the economy. The anxiety index can therefore be used as an indication of the strength of the economy, or the lack of it.
It’s measuring the effect of the economy on an individual on a personal level. It was to detect this that the Economic Anxiety Index was developed by Marketplace and Edison Research.
It is depicted as a number on a scale of 0 to 100, with a higher number indicating the greater stress of the individual in relation to the economy. Analysts sometimes refer to it as the“personal economy”.
Investopedia Anxiety Index
Investopedia has an anxiety index called the Investopedia Anxiety Index (IAI). It gauges investor sentiment, among its readers, with a reading of 100 indicating neutral. Its anxiety index drivers are Macroeconomic, Market and Debt &Credit. The Macroeconomic index is an indication of how users interact with news and other content regarding the global economy, including inflation and deflation. The Market index measures the interest of users in topics such as volatility and short selling that have negative sentiment. The Debt &Credit index is an indication of the interest of users in topics such as bankruptcy and solvency.
Here’s an example of how theIAI looks like as of August 24, 2017:
Here’s a look of how the IAI has been changing from the 25th of February 2017 to the 25th of August 2017. This reflects the varying levels of confidence in the economy. Currently confidence is at a neutral level, but has been low in this period before.
Marketplace Economic Anxiety Index
The Economic Anxiety Index developed by Marketplace and Edison Research is calculated on the basis of a poll that contains questions regarding the effect of the macro economy at a micro level. The questions deal with General Anxiety, Saving and Expenses, and Job Security.
50% of the questions come under the General Anxiety category that deals with general financial concerns people have and their anxiety about their financial situation. 30% of the questions involve Saving and Expenses dealing with fears about student loans, car payments, monthly housing costs, college and retirement savings, unexpected medical bills, etc. The remaining 20% of the score deals with job security where you have questions involving people’s fear about losing their job the coming year, and how positive they are regarding their job prospects should they lose their current job.
So how do these indices help investors and stock traders? They give a clear indication of people’s changing economic mood, what Americans feel about the economy and the markets. This can help investors make vital decisions about focusing on certain stocks or industries that fare better considering the prevalent state of the economy and people’s attitude towards it. People’s opinion, in a way, translates to investor opinion and actions.
Testing the indices and the ability to execute stocks based on these values can be done with most online brokers. However, only TradeZero provides its clients with the ability to trade for free along with the most extensive short symbol availability anywhere.
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