The Forex Economic Calendar is a vital tool in your trading kit. Learning how to use the Economic Calendar and monitor updates is crucial to successful trading. In this article we will understand how to use the Economic Calendar, evaluate events and check on the impact of news announcements, and updates.
The Forex Economic Calendar – How to use it.
The Forex Economic Calendar is one of the most useful tools that you need to have on your screen 24/7. It is useful whether you are trading Forex or Binary Options. It is of particular use also when you are trading using a signal software or an auto trader. The news updates which are announced throughout trading days, have a direct effect on how currency pairs react, and can dramatically alter results of trend trading.
There are a couple of different types of economic calendars, but the information they process is identical. Usually it is the format which changes. Our favourite site for checking the Economic Calendar is forexfactory.com and below is a typical chart which portrays the Economic Calendar
Time Zone Settings for the Economic Calendar
It is of utmost importance to synchronise the clock displaying the time of the news event with your time zone settings. This can be done by clicking on the top right hand corner on the clock and this will in turn prompt you to choose the setting of the clock to coincide with your trading charts and your trading platform. You will also in this case know the exact time when a news announcement is due in real time.
The Currency Column of the Forex Economic Calendar
The currency column refers to the main currency which will be directly impacted by the news announcement. Since in Forex as well as in Binary Options Trading, the currency is always quoted against another currency, the impact of the news will affect the currency in question vis-à-vis any other currencies quoted against it.
Currencies which are key influencers on weaker currencies, may also affect the volatility of the weaker currencies. As such the behavior of a particular currency following a news announcement or even in anticipation of the news alert will have also a direct or indirect impact on these currencies. For example the Thai Bhat is a weak currency and the Thai government keeps it floating by having reserves in U.S Dollars. Therefore if the U.S dollar weakens due to adverse news, so will the Thai Bhat automatically weaken.
The Impact Column
This is probably the most important and key information that we need to be looking at when checking the Economic Calendar.
The Yellow Icon signifies a low impact event or news update. The Orange signifies a medium impact event, whereas the Red icon is the high impact event. This will show most volatility on the currency in question. The Events and News Announcements are what create volatility and depending on your style of trading, these are the areas to watch out for and either avoid, or trade inside them.
The Middle column describes the Actual Event that result in an Economic Update.
This column describes the type of data being analysed and announced. If you click on the detail button right across from the Event column, you are immediately given more information on what the event signifies, how it will affect the currency and how often it is released.
The Previous and Forecast columns.
These columns provide information which is historical results from the previous announcement, whereas the forecast reflects the expectations of the general sentiment. This would be based on data analysed by economists.
The Actual Results Column
This last column is the actual result from the news announcements. In order to see this result close to the time of announcement you will need to refresh your browser. The page from Forex Factory is static once you load it, and it will not update automatically.
How does the actual Result affect the currency?
What any trader should bear in mind, is that the market does not respond to the data itself. Rather it responds to the actual result vis-à-vis the anticipated result. If the result is matched or bettered, then this will affect the currency positively. But if for some reason, the result is somewhat lower than the expectations, it is considered a negative result (even if it will have seen an increase over the previous data announcement) In this case the price will be affected negatively.
Trading the Forex Economic Calendar. Salient Points
Since any news announcement has an effect on the volatility of a currency, it is recommended that new traders should avoid areas where there is impending news updates. The price may fall or rise sharply in anticipation of the news. Whether the actual results match the anticipated results, will also have another impact on the currency. Volatility around the currency can start as early as an hour prior to an economic update, and will continue to be volatile until an hour after the release of economic data. This completely upsets a trending market, and most signals and indicators will not work effectively anymore. The price of the currency affected with an economic update usually finds its earlier equilibrium after an hour, and then it will be safe to trade a trending market again.
The use of auto traders should be strictly avoided during areas of volatility. Although auto traders can be very sophisticated, for the most part, it is impossible for a Bot to read market sentiment. Auto traders are excellent tools during a trending market, but can have negative results during pockets of sharp volatility.
This video on the Economic Calendar runs you through the Forex Factory site visually, and therefore easy to follow the information.
Trading on The Economic Calendar updates and using Sentiment Analysis
For seasoned traders, the volatility in the market can also create an opportunity instead of the doomsday prophecy come to life. Although the currency which is being impacted by the economic data becomes volatile, there is still a pattern of behaviour that can be followed to your advantage and trade profitably.
The video below is a live trading session during an economic calendar update. It is important to note, that trading during these periods exposes you to a higher risk of loosing your capital.
Conclusion: To Trade or Not to Trade during the Economic Calendar Updates.
Trading can be very exciting, but can also be very risky. If you have any open positions, which expire close to a news announcement, it may be wise to consider closing or hedging. Always control your risk by exercising the basic money management rules. If you are new to trading we recommend that you open an account with a Regulated Broker and receive a DEMO ACCOUNT which will help you trade safely.
We hope that this post and the related videos have gone some way to help you choose your trading style and to hold key information which is essential to trading.
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