If you want to take your forex trading to the next level, you should start checking the economic calendar. A forex price can be influenced by a variety of economic news releases and events. These financial blockbusters can push and pull forex currency pairs and even the stock market, from the Central Bank announcing a new CPI rate to non-farm payroll reports and inflation. Knowing when such significant events are approaching and how they will impact the global market can make or break your trading results.
You might feel like you’re wandering through the wilderness without a map or compass if you don’t check the economic calendar to trade forex. Furthermore, if you’re using economic indicators that rely on complex algorithmic computation, you might notice some unexpected price swings that weren’t predicted by your technical tools. This article will explain why forex traders value the economic calendar so highly, and how you can use it to greatly improve your understanding of global market movements.
Why is the economic calendar so important for forex trading?
The economic calendar is a list of news events that cause the financial markets to experience some of the highest levels of volatility throughout the year. It’s probably the most undervalued resource that a novice trader overlooks. If you don’t believe the economic calendar is useful, reconsider.
The economic calendar is as close to a crystal ball as a trader will ever get. You won’t get any kind of guarantee from the information, but you will get a point from which to look with extra attention, similar to fortune tellers. The announcements will alert you to impending volatility, allowing you to trade cautiously and ride out wild price swings. Alternatively it will warn you of expected volatility so you can trade the crazy times. It all depends on what kind of trader you are. Whether you are a conservative trader with a limited budget or a fearless profit hunter who likes high risk/reward events, the economic calendar is just what you need.
It makes a lot of sense. In the market, an economic event worthy of being listed on an economic calendar is a big deal. A national election or central bank release can have an impact on interest rates in that country, but it can also have an impact on the global market as a whole, driving forex trading volumes through the roof at the time of the release. Traders will BUY Euro-related currency pairs if the bank report shows the EU economy is strong and has a bright future. Traders will SELL (short) the Euro if economic news indicates a bleak future for the currency.
A cautious trader with a limited budget may want to avoid the chaos that usually follows an economic calendar release. Some traders will ride the money train for a quick profit and then sell at a profit. When thousands of traders BUY an instrument at the same time, the price of that instrument can rise dramatically in minutes, causing a noticeable market impact. Then, on the high, many traders SELL, and the value rapidly drops. Volatility is caused by this wave of buying and selling. You’ll see your investment crash if you BUY right before a big selloff. Timing is always important, but it can be dangerous during an economic release.
Some forex brokers, who are known for providing good financial services, choose to protect their clients by restricting access to risky instruments just before and after the release, then reopening access once the initial wave of volatility has passed. This restriction is beneficial to new traders, but more experienced traders may take a more risky approach.
Fearless profit hunter
When trading CFDs, the fearless profit hunter is a trader who will go “all in” on an asset. Perhaps the news, economic forecasts, technical indicators, and the postman all agree that a particular asset will move in a specific direction. Whatever the reason, the fearless profit hunter will risk a large sum of money while using high leverage in the hopes of making a large profit. These “all or nothing” traders are unconcerned about losing everything. They put money into their trading account that they can afford to lose and aim high. Although such a strategy is not recommended, it does require a certain level of confidence. It’s a coin with two sides. The brave are favoured by fortune, but fools rush in.
Peaks and troughs are the most profitable times to trade, but they are also the most risky, because a market flatline offers no opportunity for profit. The first traders to trade after the economic calendar news release usually get the majority of the profit, or a quick trip to Stop Loss city. Trading on economic calendar events may be just what you’re looking for if you like the sound of high risk and high reward.
Be aware that even if you choose the correct direction, your order may experience a massive jump in the opposite direction before becoming profitable. Your emotions will be rattled as you see your equity getting sucked dry with every second as you hope and pray that a reversal will come. It’s scary, but you’ll know why it’s happening. Imagine the emotional torcher of a forex trader who doesn’t. The calendar gives a warning before the volatility happens.
The Smart trader
What is a smart trader, exactly? Maybe a trader who avoids taking unnecessary risks? Smart traders can also benefit from the economic calendar. When an economic release generates positive sentiment, the assets linked to it often continue to rise or fall long after the volatility has subsided.
A smart forex trader waits for the chaos to subside, weighs his options, and then picks an appropriate time to enter a trade and profit from the more stable price shifts.
What the economic calendar shows
The calendar includes the date and time of the economic news release, the forex currency that will be affected, and the level of importance: high, medium or low. Any of the events on the calendar can generate massive profits or losses through volatility.
Buy or sell after the news release?
So now you know that using the economic calendar to trade is not for everyone. If you’re a smart conservative trader looking to invest in the forex market using economic events, you’ll need to learn how to read the situation prior to the release and then decide whether to BUY or SELL once the volatility has subsided.
In general, market volatility makes it difficult to spot a trend. When the price appears to have a long-term direction that it will follow with only minor deviations for the foreseeable future, it is said to be in a trend. To put it another way, the rocky landscape of the forex price line will not be as spectacular. When price movements have calmed down, it’s time to consider making a trade.
What did the economic news imply? There is a scoring system for most major economic events. You’ll see the number from last year’s release, the current score, and the predicted score. If the actual release score matches the forecast, the asset price will likely continue to trend in the same direction. Traders usually interpret a higher-than-expected release as a signal to BUY. If the price is lower than expected, you should either avoid trading or consider placing a SELL order.
Is there a correlation between the trend (after volatility) and the economic score? Perhaps you’ve just stumbled upon a profitable trading opportunity.
Setting up your forex trades
Currency pair traders who know what they’re doing rarely risk more than 3% of their available capital. When their trading account balance reaches a sizeable amount, they can reduce their investment percentage even further. A pro trader with $10,000 in equity might not want to risk $300+ every day unless they have a high level of confidence in their chosen trading products. Such figures can result in substantial losses.
A 3% daily trading budget, for example, means a $6 daily trading budget from a $200 deposit for a beginner trader. While having $6 to invest each day may not seem like much, smart traders think in terms of the long term and leverage the compound effect.
Using the compound effect is a simple concept. Only when the equity rises can the daily budget rise. The daily budget shrinks when losses occur. This type of money management system will allow you to not only survive bad days, but also to scale up when things are going well.
When market reports are released, forex traders are exposed to the risk of slippage, which results in prices that are often lower than the executed order. To be safe, consider closing positions five to ten minutes prior to the data release. Make use of the calendar as a reminder system. Close your orders prior to the news releases, wait for the prices to stabilise, and then place new orders based on the release’s predictions. Set your leverage at a modest or conservative level, set generous Stop Loss and take profit, and make sure you have plenty of equity to ride out the initial storms.
Reward and risk
Jumping on a forex currency pair immediately after a market release can result in significant gains, but the oscillations can be extreme. If you’re using a lot of leverage, you could be facing a margin call in a matter of minutes. Even if you don’t want to include economic calendar events in your trading strategy, it’s still a good idea to check the calendar and financial news every day before opening your trading platform. Consider whether you want to be a part-time hobby trader or if you want to expand your knowledge and experience in order to become a professional forex trader one day.
To make the most money, you must open and close orders at the most opportune times while avoiding surprises. Consider a daily commute to and from work. When are you going to leave the house? When are you going to leave your job? It’s all about the timing. Rush hour can be avoided by arriving five minutes early. If you arrive late, you will be stuck in traffic with everyone else.
Before leaving the house, you should check the economic calendar, just as you would the local traffic reports. Staying current on market events can save a forex trader a lot of pain, with losing money being the main concern.
To paraphrase a well-worn adage, great reward comes with great risk. Depending on the type of trades that interest you, you can use the calendar in one of two ways. If you’re a swing trader or a day trader, the market volatility of a news release can provide excellent opportunities for speculators with a high risk appetite.
- A trading strategy can improve your trading results.
- Indicators and technical analysis can improve trading results.
- Using the economic calendar can improve trading results.
- Following news and researching the forex market can improve your trading results.
- Matching leverage with your funds and using Stop Loss and Take Profit can improve your trading results
All of those things should be done to get the most out of forex trading. But keep in mind that markets, particularly currency pairs, can be wildly unpredictable, so there are no guarantees. The central bank may announce favourable interest rate news or some other significant event, but the markets may not react as expected, so being ready to adapt and react quickly is critical.
Trading is similar to life. There are a lot of surprises in this book, some good and some bad. Be ready for anything, learn something new every day, keep your cool, and don’t get too emotionally attached to a deal and wait too long to close it. No matter how long you wait, a rotten apple will never taste good.
Sign up with Exness to gain access to the most up-to-date educational library, expert-hosted webinars, and much more to learn more about trading forex with the help of calendar events and how to profit from upcoming market releases.
Exness is a reputable company that has been proudly providing financial services to millions of people around the world for over 12 years. Exness is licenced and regulated in multiple countries, and it is linked to the world’s most popular payment systems, allowing traders to make quick deposits and withdrawals. Furthermore, Exness values long-term relationships with traders and goes out of its way to ensure that they benefit from expected volatility. whenever possible.
Use the Exness economic calendar today, avoid crashes, and know where the money train is going before you get on.