Forex economic calendars serve a number of uses and their importance shouldn’t be underestimated.
They’re a must-have tool and should be regularly checked, especially if you want to trade the news. And it’s not just events that happen on certain days, they also highlight events that happen throughout the day.
Numerous events can take place in the span of a few hours. In fact, one country could release several economic announcements all at the same time.
There are also different events for different currencies. While some news events may affect one currency, they may have absolutely no effect on others.
Key events to look for:
- Monetary policies. These include, but are not limited to, the following::
- Interest rates. National banks announce changes to their current interest rates or they may make announcements on where they think they will go in the future. On top of this, other influential institutions may have a commentary about changes and this can also affect investors’ opinions.
- Inflation. Inflation is very related to interest rates as we explained above and it measures the cost of living. As inflation rates rise they can have an effect on interest rates because central banks will adjust interest rates to lower inflation.
- Employment rates. These can be quite revealing in regards to how well an economy is doing. The USA is often considered the most important in this regard because its economy is the largest and will likely have a knock on effect to other economies. Typically, their employment rates are announced on the first Friday of every month.
- GDP. This stands for Gross Domestic Product, and it measures how much a country produces in terms of goods and services.
When these events are announced what needs to be considered is: - were targets met, exceeded or missed?
If targets were met or exceeded, it can indicate that an economy is moving in a good direction, which can trigger buying.
If targets were missed, it can indicate that an economy is moving in a bad direction, which can trigger selling.
Events such as the above are announced usually in regards to the time of year. Often they will refer to the quarter of the year:
- Quarter 1 (Q1): January to March
- Quarter 2 (Q2): April to June
- Quarter 3 (Q3): July to September
- Quarter 4 (Q4): October to December
So you will end up with announcements such as GDP growth (Q2), for example, which will indicate the value of the country’s economic output in terms of services and products for that part of the year.
That said, some events such as interest rates and inflation are announced every month.
Forex economic calendars are useful for all areas of forex trading. Let’s look at the top five reasons to have one.
But before we start, we’d like to quickly mention that the best way to learn how to properly take advantage of a forex economic calendar is with a forex trading education. Ours is 100% free.
1. Know when to enter and when to exit
By properly utilising a forex economic calendar, traders can craft an entry and exit strategy.
You can pinpoint events that look like they may potentially be good to enter the market and pinpoint events that look like they may be good to exit.
These entry and exit points could take place over the course of a day or a week or longer.
But you need to bear in mind that unexpected events may take place between entering and exiting, especially if you leave that position open overnight. On top of that, you may incur fees.
Ideally, though, you should enter and exit the market only when you can say for certain that the market movements you believe will happen can be confirmed.
For example, when the market is at a low point, wait for it to start to pull back before jumping on your anticipated movement. That way you can be sure what you have predicted will take place. Though you may miss the lowest possible point, you will be less exposed to risk.
The same goes for the opposite.
There are a few strategies that work well alongside a forex economic calendar. Here are a couple we quite like.
Trade in the direction of the event
This strategy can work both ways, whether the news is good or bad.
It works by waiting for the news event to occur and then immediately start trading.
If the news is good, you want to buy as quickly as possible and watch as the price sharply rises. When you see the market starting to return to normality, this is a signal to sell the instrument.
You can work this out in a number of ways. Some suggestions may be to look for a double top or use Fibonacci retracements.
On the reverse, you can use this strategy to sell a currency pair before it depreciates or buy it after it makes a significant fall in price.
But you have to believe that the currency will regain its strength. Further to that, you need to think about when this might be and if this is convenient for you.
The longer you wait for a trade to become profitable, the more likely things can go wrong.
If the news is very severe, it is best to avoid the currency. An example of a highly severe situation could be the Greek banking crisis.
Scalping news with two pending orders
To do this you need to be very quick as the market will change fast and you need to be able to react to it. Once the change takes place, your strategy will need to change as well.
Here’s how you do it if you believe the news will be positive.
Create a buy order above and below the current market price. Set a target of around 20 pips from the price either way.
This way you can enter the market if it climbs up or if it dips down first.
When one of your orders is activated, remove the other one and set up another order to take profit. Make sure you take profit order is reasonable and well-researched.
If the news is bad, it may be a good idea to cancel both orders and abandon the strategy. Either way, you should always place stop-losses, just in case and adjust them every so often if you feel it is necessary.
If you use this strategy effectively, you stand the chance of making between 30-50 pips in profit in a very short time frame, sometimes in just a few minutes.
2. Avoid extreme volatility
Volatile markets can present great opportunities to buy or sell. However, keep in mind that extremely volatile market conditions are far too unpredictable to enter and present too much risk.
Highly active markets can be difficult to analyse effectively, and therefore it is hard to know what goals to set yourself in terms of entering and exiting.
This is especially true for beginners who are still learning the basics.
In such markets, quotes may be incorrect. The market may be moving so much that the quote presented to you may be very wrong.
Even in markets that supposedly show real-time prices, there can be discrepancies and you may buy or sell at a much higher or lower price than you initially wanted.
Then, even if you do decide to trade, there may be delays when your order is placed. Again, this may affect the price in which you buy or sell, further complicating your trading strategy.
In worse case scenarios, online brokers may just stop working altogether.
If you know the news is going to be bad, you’ll know when it's going to take place This also means you’ll know when you should take a day off and do something else for a while.
3. Learn what affects the market and what doesn’t
Not all events on your forex economic calendar will affect the market. Some events, if their outcome is known about for a long period of time, won’t move the market much at all.
Use your forex economic calendar alongside fundamental and technical analysis.
Look at past similar events and compare them to the event you are looking at now. How have they previously affected the market? And if so, by how much?
But don’t stop there. Why did they affect the market in that way? The circumstances may not be the same as before.
You can also go online and check articles and forums about the potential effect of the event.
You may find that people are already talking about what is likely to be announced; it might already be a well-known fact.
Despite the above, these kinds of events should still be closely watched, just in case a significant change takes place.
4. Keep ahead of everyone else
You won’t be like other inexperienced traders who ignored the news and fell victim to it. Their losses will be your gains.
There are plenty of traders out there, many of which are newbies, who will overlook the importance of using a forex economic calendar. They may not actually understand how it works (big mistake!).
Using one will also make keeping a trading journal easier where you can record all your trades. These are very effective for traders, especially beginners, so they can learn how the market works and learn from their mistakes.
Further to that, you can plan out your week while other traders wake up every morning unsure of where their trading journey will take them.
By having a clear plan, you can be a much more effective trader, reduce risks and will be less likely to panic.
A forex economic calendar can also help you with long-term trading goals as well. Forex trading should be looked at like a business and all businesses need a business plan.
By properly understanding the events that will affect the market, you can plan out a whole year of potentially significant trades.
5. Filter events by importance
With a forex economic calendar, the large number of events can often make it confusing where and what to look for.
Thankfully, many calendars allow traders to filter out different events by importance.
By doing this, you can then focus on researching the most important events and estimate for yourself if you feel they are worth your time.
Shortlist the events you think show potential and then see if it is possible to build a strategy around them.
Many economic calendars work in similar ways. In most cases, events are labelled by colour:
- Red = High impact event
- Orange = Medium impact event
- Yellow = Low impact event
They will also likely display the actual value of an event, the expected value and the previous.
- Actual = The current value of the market instrument.
- Forecast = What the value of the instrument is expected to be when the event takes place.
- Prior = The value of the instrument before the last event.
The wording of the above categories will vary depending on the forex economic calendar you use. And, of course, depending on the kind of data that is released, the way it is presented will look different.
If there’s anything you remember from this article, make sure it’s these points.
- Use a forex economic calendar to strategise trades. Know what events can be used as great entry and exit points.
- Keep track of the most important events. Not every event will have an effect on the market, focus solely on the ones you need.
- Keep away from dangerous volatility. Some markets are just too unpredictable to be a part of, therefore you should know when to stay away.
- Make smart decisions while everyone else is panicking. Be the one with a plan when other traders are struggling to understand why the market is acting so erratically.
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