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- Another Example Of Why Expectations Are So Important - July 10, 2020
The past week has seen a continuation of the current differing market views, with recovery hopes on the one end and virus fears on the other. But like we’ve seen for a few weeks now, the market’s proclivity to discount the negatives has once again seen the bulls win the fight. This week, the virus front poses a possible bigger challenge.
This Week’s Economic Calendar – How You Can Understand It And Trade It
Currency prices don’t just move – they are MOVED. This is a fact from which you can take full advantage of when you learn how to read and understand an economic calendar.
Literally, the best question you can ever ask yourself before even looking at your charts is: “What’s on the economic calendar this week?”
Fundamental Analysis shows you the core reasons why currency prices move. So it’s also a fact that you can always be one step ahead, primed and ready to take full advantage of the market BEFORE it moves.
Now, don’t worry — we’re not going to throw some overwhelming discourse into macroeconomics at you! That would be disrespectful.
At Financial Source we break it down really simply for you and show you HOW to trade fundamental analysis. If you’re new to the concept of news-based trading, then you’re in a for a pretty exciting journey! Trading the news is fast-paced, often volatile, extremely profitable … and one heck of an exhilarating ride!
Check out this audio squawk of a live Non Farm Payroll data release.
Pretty exciting stuff, eh?! Day trading the news has got to be one of the most exciting jobs out there, and literally why I love getting up in the mornings!
The great thing is that there is a multitude of economic data releases to trade each week.
Here is a summary of what we’ll be looking at in this article:
- Why keeping track of economic indicators is important?
- What is an economic calendar?
- How to see when economic events take place
- How to know which economic events are important
- Evaluating what markets are expecting from economic events
- Putting it all together
Why Keeping Track Of Economic Indicators Is Important?
Beginners often question whether tracking data points is necessary. The short answer to this is ‘yes’.
It is necessary if you want to know what will move the forex market next and why.
If you like trading with technical analysis, then this page will explain How The Financial Source Terminal Improves Technical Indicator System Performance. By adding Economic Indicators to your trading routine, you ensure that you are always trading technical indicator signals in line with market sentiment and risk tone.
Economic indicators are the catalysts for market movement. This, of course, enables you to trade on the right side of the market confidently. And more often than not, straight into profit, too, with zero drawdown.
This is also irrespective of whether you trade with technical analysis or not. You still need to be focused upon that which ‘moves’ the markets in real time.
Central Banks are the most important institutions in the financial markets. And you can rest assured that Central Banks keep a keen track of economic indicators at all times. A Central Bank will not once take their eye off this ball. Economic indicators are that important.
Professional institutional traders know well the impact that economic indicators can have on a Central Bank’s monetary policy and how these can directly affect currency values.
Keeping track of economic indicators is an essential part in any (successful) trading process. You can keep an eye on upcoming economic indicators by way of a forex economic calendar.
What Is An Economic Calendar?
Also known as an FX Calendar, this is simply a date ordered list of economic data points released by independent and government agencies. According to Wikipedia, an FX calendar is used to “monitor market-moving events”. For example, some of these agencies would be:
- Bureau of Labor Statistics (releases economic data for the US)
- Office for National Statistics (releases economic data for the UK)
- Eurostat (releases economic data for the EU)
- IHS Markit (releases PMI data for various countries around the world)
These are only but a few of the many agencies that release economic data. But with so many countries and indicators, how can traders keep track of them all?
This is a good question and it’s a common stumbling block.
The good news is that we have a huge and helpful free resource for you: Financial Source Knowledge Base Videos. These videos are the best way to learn how to trade the news. Bookmark and refer to these videos regularly and you will quickly get up to speed on the best economic indicators to focus on and how to trade after a news release.
Alternatively, you can also register for the Financial Source Terminal, and we’ll do all of the research for you. The result is pure, effortless forex trading every single day!
Below is an example of a free calendar by Forex Factory:
How To Know When Economic Events Will Take Place
The main purpose of a calendar is to be able to plan ahead.
Fortunately, we don’t need to remember when all the events are due. The calendar provides us with that important info.
We can simply look a day or week ahead and see which events are scheduled.
– As an illustration, we can look at the example below:
The calendar shows us the dates as well as the time of the various releases.
This helps us in two important ways:
- To be able to see the events in advance allows us to plan future trades.
- And to see the events in advance to helps us to manage existing trades.
This can help us to reduce risk on open positions. We can take profits and reduce risk if data is forecast to come out against our trades.
In the same way, it can also help us to stay in winning trades. A vital consideration is the time zone which is used by different economic calendars.
Some calendars automatically detect your local time. Thus, the times displayed for the risk events are in your local time.
Some calendars require you to set your time zone manually. Make sure to double check this on the calendar you decide to use.
How To Know What Economic Events Will Take Place
The next step in the calendar is knowing what events are due. The majority of calendars will give a short description of the event.
The examples below illustrate how different calendars display the same event.
- – Below is an example from the Forex Factory calendar. The event displayed is US CPI:
- – Below is an example from the Metastock Xenith calendar:
Do you notice that the Xenith calendar offers more data points?
The two free calendars only had the month over month numbers. This is one of the clear advantages of having a subscription-based calendar. They are also quicker to release the data.
How To Know What The Different Indicators Mean
But what about beginners who don’t know what the indicators mean. For those who are new to trading, all the various indicators can be rather daunting.
Luckily, some calendars have that covered as well. Some of the calendars also provide detailed descriptions of the indicators.
This is a very helpful tool. Especially for beginner traders who are still learning. Let’s see what some of these detailed descriptions look like.
For this example, we have used US CPI as an example once more.
- – Below is an example of a detailed description on the Forex Factory Calendar:
Below is an example from the Metastock Xenith Calendar. This subscription-based calendar provides more info compared to the other two versions.
The detail sections will usually provide the following helpful info:
- – The agency or source that is providing the data
- – It explains what the indicator is measuring
- – Usually, it also shows what type of impact the release has on the currency
- – Some calendars provide the past historic data for the indicator
- – It also shows when the next release is due
- – Some will also provide a chart of the indicator as well.
As you will have noted, there is more USEFUL AND TRADEABLE information provided in the paid subscription Xenith calendar.
Make sure to look at this attribute when choosing a calendar for yourself.
How To Know Which Economic Events Are Important
There can be anything from 400 and 800 economic data points released every month. Furthermore, that is only for the G7 currencies.
There can be roughly anywhere between 100 and 200 scheduled data points every week.
Are all the events and indicators important for trading? The answer is ‘no’. Not every event on an economic calendar will be market-moving either.
Usually, calendars will have a section that shows an indicator’s volatility.
In other words, what the likely impact of the event will have on the markets. This is an essential part of the calendar.
This is especially useful for beginners as it highlights which events are the most important. This comes with a caveat:
Let’s have a look at a few examples of how calendars display this information.
The forex factory calendar below displays the impact in colours. Red is high impact; orange is medium impact; and yellow is low impact.
Below is an example from the Metastock Xenith calendar. It displays the impact in bars.
And here comes that caveat: Impact ratings can vary across calendars.
Some calendars are not always accurate with impact ratios. A good example of this would be Euro Zone PMI releases.
According to the Forex Factory calendar, these events have a medium impact.
This can be seen in the example below.
However, the Babypips calendar below rates this event as a high-impact release.
Which one do you trust?
PMI indicators are essential leading indicators and can really move the markets. Over time this is something that you will learn and just know. As you will with all important economic indicators; and Financial Source will help you with that.
The example below is a good illustration of this.
In both these examples, the EUR PMI data had big reactions. In fact, the price dropped almost 100 pips after each release.
From this example, it’s clear that PMI data should be rated as a high-impact release. Don’t always trust the impact ratings on their own.
How To Know What Markets Are Expecting From Economic Events
Markets don’t always react to high and low-impact news in the same way. The reason for this has to do with expectations.
Markets usually price in data points based on the forecasted outcome. As a result, what traders expect to happen is just as important as the event itself.
So, how can we see what markets are expecting from data releases?
The majority of the calendars will provide the following information:
- What the previous release of the item was
- The market forecast for the upcoming release
- The actual data release number
Let’s look at a few examples below. The first example is the Forex Factory expectations section:
Below is the example of the same expectations section on the Babypips calendar.
As mentioned before, the subscription-based calendars often provide more information. For instance, the Metastock Xenith example below is a good example of this.
The minimum and maximum numbers are very important. They let us know when an event has deviated significantly from market expectations.
Above is an example how the Metastock calendar points out big deviations. Did you notice the lighting symbol next to some of the releases? This is market moving information!
They show when actual numbers came in below the minimum or above the maximum forecasts. These can provide fantastic trading opportunities.
This is one element that sets the MetaStock Xenith Calendar apart from the rest.
Having access to this type of real-time info can really help traders to gain an edge in the markets.
Putting It All Together
1. Find an economic calendar you’re comfortable with
Make sure to select one that has the features we mentioned above. Look for ones that offer more details.
2. Use the calendar to plan ahead
Don’t get blindsided by economic events. Make sure to plan your trading days with the help of the calendar and your Free Financial Source Daily/Weekly Outlook Videos
3. Evaluate how markets react to news events to sharpen your skills
Practice your fundamental skills by analyzing how markets react to news events. A little bit of research will tell you what traders are expecting from data releases.
The important questions to answer are:
- Why is the event important?
- What are market participants expecting from it?
- How are traders likely to trade the event based on bit beats or misses?
Then, see how the actual event differs from the market’s forecasts. This will be a great way to sharpen your skills.
You may be thinking: Is there any forex news trading software available? Is there anything to make the whole process much easier?
The answer is ‘yes’. We know fundamental analysis inside out. And we can tell you: the best thing that has been developed yet is the Financial Source Terminal. This is your best shortcut to analysis and a comprehensive, workable news trading strategy. All of the research is done for you!