What do I Need to Know about the Financial Calendar?
When trading in the Forex market, a trader needs to keep track of global events which could impact the exchange rate of the currency pair which they are trading in. the easiest way to do so is to use a financial calendar which monitors such market-moving elements. Some of the most influential events are changes in the GDP of the nations of which currencies are being traded, interest rate decisions in the countries, consumer price index (CPI), purchasing managers’ index (PMI) and jobs data like non-farm payrolls (NFP’s) – as well as other elements.
Choose a financial calendar you are comfortable with
While traders could search online for key future economic, as well as political indicators, and create a customized calendar – there are several reliable online platforms/networks which offer economic calendars, with the indicators updating automatically at regular intervals; Forex Tigon LTD has an excellent financial calendar, which also highlights the importance of each economic indicator, providing indication of which markets are more likely to shift. If specific markets are being traded, then indicators which relate to those specific markets should be taken into consideration when deciding what to add to the economic calendar.
The key to success in using these events to your advantage Is not only knowledge that occurrence is near, but in the anticipation of the direction in which the market will move, as a result of it, and why; This, however, is the reaction of the market and can be quite unpredictable in most cases – though the trader is presented with excellent opportunities which make a successful trade; it is completely your decision whether or not the trader would want to use these events to trade, but in knowing when these events will occur still remains crucial; the first step is to choose a financial calendar which the trader is comfortable with.
Step 1: How to Choose a Financial Calendar
While you could research online for key future political and economic indicators and create your own calendar, there are several reliable online platforms that offer economic calendars, with the indicators being automatically updated at regular intervals. Forex Tigon LTD has an excellent financial calendar that also highlights the importance of each economic indicator giving you an indication of which are more likely to move markets. If you’re trading specific markets you might choose to add those indicators into your own personal calendar.
Step 2: How to Choose the Right Indicators
Experienced forex traders monitor future economic events in an attempt to predict currency movements and act in time to make the most of the economic announcements. They usually already calculate the impact on their currency pair and plan their trade accordingly. They also tend to lay greater emphasis on specific indicators that they believe will be the most influential or meaningful for their currency pair.
How they use the economic calendar is that they keep track of approaching announcements. What usually occurs is that economic experts forecast the measures that are likely to be announced. The forex trader then uses these forecasts to price in the value into their currency pair, responding to currency movements before others have a chance, and thereby maximizing their gains. The reality is that economic events can alter the direction of currency movement within seconds and the quicker that a trader can respond with a trading decision, the more likely they are to gain.
Of course, making a profit would ultimately depend on whether you have been able to predict the movement or volatility accurately. Often it is not about the actual data that comes out but whether the data is outside of expectations. So if for example people expect an NFP number of new jobs added to come in at 130,000 and it comes way above or below that number, then it’s possible to see some large moves for the US dollar in response.
Step 3: Using the Calendar
Experienced ForEx traders monitor the future economic events and of the outcome of such events, in order to be able to better guess/predict currency movements and to act in time to make the most of the economic announcements; traders typically calculate the impact on the pairs prior to this and plan their trades accordingly.
The way that a trader uses the calendar is that approaching announcements are endlessly monitored; what typically happens in this scenario is that economic experts predict measures which are likely to be announced, and the ForEx trader then uses this to their advantage and forecasts price value in their currency pairs – responding to currency movements – before others have the chance, to therefore maximize their gains, in turn.
Economic events can alter the direction of currency movements, within seconds; the faster the response with a trading decision is made, the more likely it is for gains to be made; making a profit, of course, would ultimately be dependent on whether or not predictions were accurately made, with regards to the volatility and the movement of the market;
Often it is not about actual data which comes out, but whether the data is outside the circle of expectation; if, for example, NFP’s are expected to have 130,000 new jobs added, and it comes out to way below, or above than the initial number, then it is possible to see some large moves for the U.S. Dollar in response to this.
Remember to consider all the political and economic factors
If the calendar is monitored regularly and properly paid attention to with regards to detail, trends can be followed better, and even spot trends before the market does and benefit from the analysis of the trend.
While using an economic calendar, what is important to remember is that all the political and economic factors need consideration, as they can impact the currency pair. Essentially, this means that the bigger picture is needed to be kept in mind, and not just specific events or announcements;
For example, an event that impacts a currency that the trader may not be trading in could have an impact on the pair too; so, while choosing the indicators to follow on the calendar, make sure to choose wisely, and relatively. Only use what you need, with regards to your chosen pair/instruments/other.