How The Economic Machine Works by Ray Dalio

Those of you who have studied economics know that it’s not the most exciting topic and one that is often ignored for its value in making money from the market. More often than not new traders to the game think it’s easier to create a system based on technical analysis. Coming up with a set of indicators seems easier to do than trying to understand world events and deciphering company reports. But is ignoring the basic fundamentals of the market a wise decision and can getting a grasp of how the economy works really help you make money?

Ray Dalio founded Bridgewater Associates in 1975 and in 2012 it was the largest hedge fund in the world. In October 2014 it had over $160 billion under management.

Obviously the exact system that Ray has used over the years is a closely guarded secret and we will never know exactly how he trades but in 2013 he released a short 30 minute video titled “How the Economic Machine Works.”

In it he explains the mechanics of the economy in very simplistic terms. By having a good understanding about how the economy works Dalio was able to use this information to predict the 2008 financial crisis. Now granted he most likely did a lot of research in coming to his conclusion but it shows that you don’t need fancy indicators or a lot of rules to make money in the markets.

What is sometimes better is a great understanding of how things work be it the mechanics of a particular industry, global economy or maybe the governments effect on a foreign exchange pair. From that you can build a system that over the long term is profitable and easy to trade.

For those of you who have not seen this video I highly recommend you spend 30 minutes of your time and watch it below. It could change the way you think about your approach to investing.