The economic calendar is one of the most important tools when trading the forex markets or other financial asset classes.
However, there are still a lot of traders that ignore it, despite the potential it has in helping to limit losses. So this article will take you through:
- What the economic calendar is
- How to read the calendar
- And finally how to use it when trading
WHAT IS THE FOREX ECONOMIC CALENDAR?
The economic calendar is a schedule of economic events that could have an impact on the financial markets and their price moves. Whether you are trading forex or any other asset class, economic data could impact your positions in the market, so it is important to keep an eye on the calendar throughout the day.
FINDING A TRADING CALENDAR
Many trading brokers, websites and platforms provide their own economic calendars, allowing for ample resources for staying on top of the latest upcoming economic news. Most of these calendars are similar and have automatic updates, are easy to read and provide various features to make the analysis experience simpler.
HOW TO READ THE ECONOMIC CALENDAR IN FOREX TRADING
The calendar will list the relevant events and data releases from around the world for each day. You can focus on a single day, or you can look at a series of weeks or months as a whole.
You are also able to filter the majority of calendars to see the most important news, or a certain country or region. The list consists of the time of day, currency affected, event and further details.
An example would be releases such as the official bank rate, annual budget release, federal budget balance or asset purchase facility.
In the time leading up to the release, traders can analyze market graphs and charts that display previous numbers and movements of the specific release information. The calendar usually shows previous predictions compared to what was actually achieved.
The key function of the economic calendar is to inform traders about upcoming events that have the potential to influence their trades. Because data is released daily around the world, these events continue to impact market conditions and price action. The nature and numbers of these releases will determine whether price action is affected positively or negatively.
HOW TO USE THE ECONOMIC CALENDAR IN FOREX TRADING
By analysing news events and releases, forex traders can monitor market conditions and predict potential fluctuations surrounding key events. As a whole, this can form part of a forex trading strategy.
Reading the economic calendar requires knowledge of which countries’ developments can impact certain currencies. If you were to ignore releases from an influential country, it could be detrimental to your trades if large fluctuations occur as a result of the news.
As part of your trading strategy, using economic news to your advantage can prove beneficial in reducing losses and increasing gains. Make sure, if you are a technical trader to always be on the lookout for news releases that could impact your positions.
There are also some traders who will use the calendar and fundamental analysis as their sole trading strategy. However, it is not advised to new traders or traders inexperienced with the method as it carries a high level of risk.
You see if a trader is knowledgeable about different market economies, they can use it to their advantage.
Now, let’s take a recent example. If a trader trades the GBPUSD, and they have seen a trend of European consumer spending data spiking after the easing of lockdowns. The then see euro currency pairs moving higher after the release and it may give him/her the opinion that the UK will see similar results.
They will then open a buy position on the GBPUSD prior to the release of the UK’s consumer spending data, expecting the same result.
THE BOTTOM LINE
The economic data calendar is a vital part of foreign exchange markets and other financial markets. Forex markets are very much economically driven, so traders shouldn’t ignore the calendar as it can have both a positive and negative impact on your trading positions.
You can you use it as part of your overall strategy or as a tool to manage risk depending on your trading style. Just remember whether you are a fundamental analysis based trader or a technical analysis based one, don’t ignore the economic calendar.
Reprinted from AskTraders, the copyright all reserved by the original author.
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