A forex economic calendar is a key tool if you want to achieve any kind of success in the competitive world of currency trading. It offers an insight into market movements, allowing a trader to work to anticipate the way that the market functions. With releases of economic data, such as the US non-farm payroll number or GDP, the market can make sharp moves, and not all are predictable. However, they do create opportunities. When it comes to forex trading, choosing to utilize a forex economic calendar should be a no-brainer. Here’s why.
What is an Economic Calendar?
An economic calendar shows news and scheduled data releases related to financial markets or the economy in general. This includes things such as GDP data releases and interest-rate decisions. There are economic news releases everyday, and an economic calendar can show you when those releases are scheduled.
There are multiple economic calendar websites and built-in platform options, and they’ll all have different grading systems. However, the general idea is that minor events are low impact, while significant events have a high impact, and medium events are somewhere in between. This can give a trader an idea of which reports and events are likely to affect the market, and in what ways.
Characteristics of a Good Economic Calendar
Traders with a lot of experience under their belts usually examine future events every day, allowing them to stay ahead of the curve so that they can plan accordingly. Good economic calendars provide an effective yet altogether simple way to keep track of everything and easily use all of the information available—key economic and non economic indicators alike. Traders can find clues to how the market will be moving and how certain indicators are expected to influence the market.
Using an Economic Calendar
Economic calendars can be used in a number of ways. The most popular option is to use an online calendar, which will update data automatically and provide the widest range of information. Beginner traders will notice that the information will be available by country, influence, or indicator, as well as other categories.
Different countries have different levels of influence on global markets such as forex. The US dollar, for example, takes up almost two-thirds of the foreign exchange reserves and is known to have a status of reserve currency. What this means is that the United States makes up a huge portion of global currency trading, which in turn means that news and events coming out of the US will have a big impact on the market—even on currency pairs that do not include the US dollar.
Importance on Reducing Risk
It’s important that you keep track of release times, as well as dates. It’s also important that you know what your risk is on every single trade that you enter into. Ideally, the risk should be 1% or less, and there are multiple measures you can take to ensure this. For example, a stop loss order can kick in and remove you from a trade at a price of your choosing. However, high-impact data releases can drastically alter your course—for example, inducing slippage that could cause a loss of 5% or more instead of the 1% risk that you were expecting.
Typically, traders will close out their positions on forex, stocks, or futures just minutes before data that is considered high-impact is released. This is due to the unpredictability of the economic calendar, as we don’t know exactly what information will be released.
Tracking Market-Influencing News Releases
Events marked as high-impact (usually in red, but it depends on the calendar) are the ones that traders need to pay specific attention to. Volatility around events is to be expected, and as a result of traders dropping pending orders, liquidity can drop right before an event occurs. This can cause the price to fluctuate before going in a sustainable direction.
Remember high impact events can have a immediate extreme impact on the markets when they are released but can also form the basis for long term trends.
Economic calendars give traders and investors an idea of when to act and what to do. The information that is presented should be closely examined and followed by traders, no matter their experience, as economic calendars allow you to quickly react to changing market conditions. Whether looking for opportunities to trade or managing risk by avoiding volatile times savvy traders often check the calendar several times a day for the latest updates. Remember, by keeping a forex economic calendar by your side, you can stay one step ahead of the market, so never underestimate its importance.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.