The Importance of Economic Calendar in Trading

Forex Economic Calendar

Economic Calendar

Trading is an activity where we indulge in the buying and selling of the stocks in a bid to book profits or realize gains within a short span of time. It is often a different ball game altogether in comparison to investment as an investment is more about holding the assets for the long run for wealth creation. That makes trading more prone to be affected by the swings and momentum of the economy and market.

The intriguing aspect of the economy and the market is that they are ever-changing and dynamic in nature. A single bit of information can create fluctuation in the entire market sentiment. And that, in turn, impacts the way trading is conducted. As a trader, it is quite useful if you can get your hands on the information with ease. This is where the economic calendar comes in.

Most of the economy-related information is scheduled pre-hand, although some of them may come as of a sudden. The economic calendar tends to contain information about these events which can help out traders to make the best of decisions. We here look at the economic calendar and its importance in trading.

What is Economic Calendar?

An economic calendar is just like any other normal calendar except for the fact that it contains important information and news about the economic events about to happen in the forthcoming time. Just like a normal calendar contains different dates and information about the normal events, the economic calendar contains dates and information regarding different economic events. It is also known as Forex Calendar.

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There are various economic events like interest rate decisions, consumer price index, gross domestic product (GDP) and non-farm payrolls among few that tend to impact the market directly or indirectly. An economic calendar keeps a note of these events and the schedule of their announcements in the forecast future.

How Information and Events affect Trading?

For traders alike, the impeding economic events or announcements tend to mark a great factor in the trading. The economic market is pretty volatile and tends to swing around with the influx of any news or announcements. Any events like the announcement of a Non farm Payroll Report will substantially create an impact on the FX market. Similarly, OPEC reports will create an impact on the global oil and economy. As a trader who lives upon trading and en-cashes on the momentum to gain profits, these certain volatilize will create a shift in trade values impacting his profit levels.

Importance of Economic Calendar for trading 

Trading is often affected by market events and occurring. Having the opportunity to anticipate the movement in the market and identify the right trading moves allows a trader to plan his trades accordingly. The economic calendar is an indispensable part of a modern-day trader as it allows them to read and interpret the market and the happenings around. This also helps to predict any impending changes that may occur as a result of the forthcoming events.

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Often time traders tend to wait and pay close attention to any forthcoming announcement and events so that they can maximize their gains based on the potential market direction and momentum. They study the status of the economy and review similar events that have happened in the past to speculate the trade and gain any vital stock tips. It’s a major marker for any trader and its part of the analysis of any trader. For an experienced trader, the economic calendar is always part of his fundamental analysis.

For say, under the normal market conditions, you plan for your trades and seek an entry and stop-loss price accordingly. As and when any high-impact data is released or announcement is made, the future positions for your trade will substantially change and that may affect your profit margins. This is where overseeing economic calendar and knowing when the announcement will be made or such data will be out can help you plan your future trades in such a way that you are on the profit side of things. If you are one of those traders indulging in options trading, you can further design strategy accordingly based on the timing of the specific events.

How to use Economic Calendar for Trading

As we talked about, the economic calendar tends to form the basis for the upcoming events and announcements. These events create a domino effect on the market which tends to affect the traders. The traders can use the economic calendar to make the most of the forthcoming market momentum.

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Using the economic calendar is all about understanding how the different data fields and learning about the right indicators. Here’s how you can do so. Read along.

  • Start with the identification of the indicators

Economic calendars contain two types of indicators as leading indicators and lagging indicators. These indicators help to define the economic tendency. Leading indicators are the ones where large economic adjustments tend to be made on while the lagging ones are those that reflect the economic performance in the past where the economic tendency is already formed.

  • Take note of the data

As a trader, you have to deal with different market-moving information. These information and data alike tend to help provide the basis for trading. You need to understand the estimates based on the future happenings and announcements if you want to make the most of it. For that, a trader should take note of the data and form a basis for projected data so that they can plan the next trade.

  • Understand the factors

If we were to list them out, there are four major factors that tend to affect the financial market on a global scale and they are Gross Domestic Product, Inflation Data, Central Bank Interest Rate, and Employment Data. These factors combined help to provide a comparative study and give a prediction of how the market will perform in the upcoming time. Talking about these in brief, GDP helps to show the status of the economy whilst inflation data talks about the nation’s ability to purchase goods. Similarly, interest rate showcases whether the nation’s economic stance is better or not as ‘lower the interest, better the economy’ is a universal mandate. Likewise, unemployment data can be a marker for future economic stance.

Final words

As a trader, being at the forefront of the economic news and happenings is vital if you want to become a successful one. The economic calendar helps to provide you that window of information regarding the upcoming economic events and news and lets you plan your trade in such a way that you can maximize your gains and lower the risks. The economic calendar is a pretty vital part of any trader and can be one of the differences between you successfully forecasting the future trades or being on the wrong side of the market swing.

About Aditi Singh 87 Articles
Aditi Singh is an independent finance and investment advisor since 7 years and recently added with Investment Pedia. Users are welcome to put comments on her contributions.

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