Traders in foreign exchange market often pay close attention to the events happening around the world by using a financial calendar also known as an Economic Calendar. A trader is able to anticipate when major economic movements will happen when they have a well-mapped release schedule for each economic indicator in the world relevant to what they trade in. Among the most important events include interest rate decisions, changes in Gross Domestic Product (GDP). Consumer Price Index (CPI), Purchasing Managers’ Index (PMI) and non-farming payroll numbers. There are several free resources available online which traders can use to determine the time of future when market-altering events will happen.
Because of the importance of the Economic Calendar is given by traders around the world, several high-profile websites and FX brokers publish release dates for forthcoming economic reports each and every week. Traders will research the date and specific time a particular event is going to happen and pay close attention to its announcement. This is mainly because there is a high probability that such an announcement will affect the direction of the market.
How to use an Economic Calendar
Identify the right indicators
There are usually two types of indicators.
- Leading indicators: These are the indicators that change before a large economic adjustment is made. These indicators can be used to predict future trends. An example is retail sales.
- Lagging indicators reflect the economic performance in the past. Changes to these indicators are identified only after an economic tendency has already been formed. An example is unemployment rate.
An Economic Calendar should be designed in such a way that economic indicators are graded accordingly. Some traders grade these indicators according to the volatility that these indicators might cause in the market.
Learn how to deal with data
Almost every other time when market-moving information comes out, traders compare the current figures with those regarding the previous period but at the same time taking into account analysts’ estimates for the same data. These three figures when put together will help a trader become aware whether new data exceeds expectations or if it disappoints. This will then help them determine their next move.
An Economic calendar can help a trader be aware of a possible change fast and act more rapidly than other players in the market. Political news and economic announcements can alter the direction of a specific currency pair. At times this direction can change within seconds and this is where the economic calendar comes in handy.
Once a trader knows the release of some specific information is imminent, her first decision should be to determine whether such a release will trigger volatility and if such volatility will be high. It will then be very important that a trader be strategically positioned and also place protective stops. This is why leading indicators are given priority in many traders’ decisions. A trader will profit if she has information in advance since they can then project the possible direction of a currency pair.
Understand what to look for in an Economic Calendar
In order to benefit from using an Economic Calendar fully, a trader must know what information or events to pay close attention to. Such a trader will stay ahead of announcements of crucial events and act in a respective way such that when certain announcements are made, they will have taken positions and even estimated the value of the currency pair they want. By carefully studying an Economic Calendar, a trader can tell which events are critical and which ones are not with regard to the currency pair or commodity they are interested in.
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