Day traders must keep an eye on an economic calendar. It comprises a schedule for the release of economic reports and news. However, not every trader is equipped with the knowledge and the tools necessary to make proper use of an economic calendar, no matter how critical this is. Thankfully, we are here to guide you through the process.
If you are here to make sense of an economic calendar and how to use it, you have come to the right place. Read on to discover more today.
Understanding the Essence of Economic Calendars
An economic calendar is a tool used by traders who conduct fundamental analyses. As a result, the trader reduces the risk of making decisions based on incomplete knowledge, lowering the likelihood of loss.
Brokers regard the economic calendar as a critical tool for performing profitable trading. The vast majority of people take advantage of free resources. On their separate websites, Bloomberg and Investing.com both provide access to economic calendars.
Moreover, the economic calendar is quite important when trading forex. Using the calendar, a trader can increase their grasp of the reasons for market movement as well as their ability to predict its movements. The Gross Domestic Product report and non-farm payroll numbers from the United States are often the most market-moving events. Even if not all market reactions to news can be predicted, they provide significant trading opportunities.
The Inner Workings of an Economic Calendar
Every day, skilled traders forecast the movement of currency pairs based on an examination of upcoming economic events. They typically get a head start on major event announcements and react appropriately, so that by the time the news is made, they have already completed an analysis of the value of the currency pair of interest.
Traders can keep track of events, news, and comments by using an economic calendar. They can use this crucial trading tool to monitor major economic and non-economic variables that may provide market direction signals. Simply put, by employing this crucial trading tool, traders can also be aware of occurrences that are expected to influence the movement of a currency.
A Look at an Economic Calendar
To give you a brief look into an economic calendar, we must reimagine what it usually contains. It indicates anticipated occurrences as well as data release timetables. In addition, you may view analyst projections and historical data. Following the revelation of the data, it is included in the table’s “actual” column.
The number of stars under the heading “Imp.” shows the likelihood of the impact. A market stability grade of one suggests that the market is relatively steady. A three-star rating implies a high level of uncertainty.
A calendar of economic events will cover both industry-specific events and national and international events. As a day trader, keep the following information in mind. Economic calendar investment suggestions
The 2 Event Categories on an Economic Calendar
Many economic events are listed on calendars. In most situations, these types of incidents fall into one of two event categories:
The Lagging Indicator
Indicators that are out of date measure market action in the past. Inflation is a lagging indicator since it has already occurred.
The Leading Indicator
Leading indicators are used to generate future predictions. Consumer confidence can be used to forecast spending as well as economic production.
Other calendars that traders may find useful include the following:
A dividend calendar shows when a firm will begin paying dividends to shareholders.
This calendar shows the days on which firms must declare their results.
IPO (Initial Public Offerings)
The initial public offering calendar lists the dates on which various companies will make their initial public offerings.
This calendar shows the dates of stock splits for various companies.
Economic Calendar 101: The Economic Activity Data
These figures indicate a healthy economic environment. Figures from the government, research, and industry are all provided. The statistics from the PMI, Retail Sales, and Central Bank Meetings are all included in the figures that measure economic activity.
Economic Calendar 101: Purchasing Managers Index (PMI)
Private enterprises are in charge of evaluating the performance of the manufacturing, construction, and service industries. According to the data, the industry could be expanding or contracting.
The index is a number between 0 and 100. During the peak of COVID-19, the manufacturing PMI in the United States reached 36.1%. The epidemic had a negative impact on the American economy. The economy is expanding at a rate greater than 50%.
Economic Calendar 101: The Retail Sale
Day traders require retail statistics because retail employs a sizable fraction of the labor force in the vast majority of industrialized countries. The business sector employs around 4.7 million Americans. An increase in retail sales suggests that the economy is expanding.
It is not unusual for there to be a link between an increase in the number of consumers and an increase in the cost of goods. Following that, the central bank may decide to hike interest rates.
Moreover, it is also worth noting that retail sales are an indirect indicator of a country’s interest rate and inflation rate. For example, Eurostat and the United States Census Bureau both offer information on retail sales.
Economic Calendar 101: The Central Bank Meetings
Any country’s central bank possesses considerable power. It determines whether new funds should be issued or interest rates should be changed. Day traders must also pay special attention to quantitative easing, meeting minutes, and statements made by key officials. These kinds of statements have the potential to influence the performance of a currency’s market.
Day traders should be aware of the following big financial institutions, such as the Bank of Canada (BOC), Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB), Federal Reserve, and Swiss National Bank (SNB).
Economic Calendar 101: The PPI and CPI, and Inflation Figures
Inflation is linked to monetary policy components such as interest rates. As a result, a central bank may decide to raise interest rates in reaction to high levels of inflation. Individuals and corporations alike are more willing to make purchases and investments when interest rates are low.
An economic calendar must include both the Consumer Price Index (CPI) and the Producer Price Index (PPI). The Consumer Price Index analyzes changes in a wide range of prices, including food, automobiles, and gasoline. On the other hand, the Producer Price Index (PPI) is a price index that tracks changes in producer prices.
Furthermore, the housing price index as well as the export and import price index are both included in economic calendars. In the United States, the Bureau of Labor Statistics is in charge of providing inflation data; however, Eurostat is in charge of this duty in the European Union.
Economic Calendar 101: The Data on Employment
The figures shown here illustrate the economy’s strength. It is used as a factor by a country’s central bank to determine whether or not to change interest rates. It is possible for a country’s central bank to boost interest rates while unemployment is low and wages are high.
What You Should Know for Day Trading
As a day trader, you should monitor employment data from throughout the world. The Bureau of Labor Statistics releases nonfarm payrolls on the first Friday of each month.
When researching employment statistics, traders must take a variety of aspects into account. First, examine the employment figures from the previous month. It will also aid in the counting of youngsters who are unemployed.
Moreover, when analyzing statistics, it is also critical to examine earnings as well as the participation rate.
The events listed are not the only ones available in an economic calendar. GDP data, consumer confidence, crude oil stockpiles, vehicle sales, housing starts, and industrial production are all relevant indicators as well.
Why You Must Use an Economic Calendar Today
Economic calendars provide numerous advantages. To begin, they exhibit less astonishment when unexpected situations occur. In the absence of a calendar, market participants would be caught off guard by NFP and Fed decisions.
Second, it supports strategy creation. A calendar might be useful when deciding between numerous possibilities. To put things into perspective, scalping may be an alternative to explore in the case of large economic data sets. With no presence of significant data, a viable option is to make use of swing trading.
In addition, it performs data analysis. The economic calendar, as indicated in the table below, can be used to identify patterns. Since 2016, the Bank of Japan has maintained a negative interest rate.
The Threats of High-Impact Data
The data that had a substantial impact revealed a plethora of difficulties. Volatility may occur if data or an event does not conform to expectations. Two of the risks involve panic selling and market sell-off.
When data is unfavorable, investors rush to sell their stocks. Fear could be the driving force behind a major market collapse, leading to a high multitude of panic selling. Meanwhile, the publication of data can prompt sudden market sell-offs in a variety of asset classes.
5 Key Economic Calendar Strategies to Implement
Using the economic calendar necessitates the implementation of several different tactics. Some of the key economic calendar strategies to implement are as follows:
Trading the economic calendar is conceivable with pending orders. The idea is to profit on the unpredictability of the data. If the EUR/USD is trading at 1.1200, set your buy stop order at 1.1230 and your sell stop order at 1.1180. For these transactions, set a limit for your potential loss and a target for your potential gain. The information will result in the processing of the pending order.
Using the calendar allows one to plan long-term trade. If the Fed makes hawkish comments, sell EUR/USD.
Another approach is to trade before the data is out. Certain assets take action before the data is revealed. Utilize these moves.
Rumors to News
The trader purchases rumors and sells news in order to benefit from disparities between the two. If the NFP figures are positive and in accordance with expectations, you should consider selling US dollars.
Trading quickly is an essential component of this strategy. Switch to this technique once key information is obtained. As the level of volatility rises, open more transactions.
The current period’s results are compared to the prior period’s outcomes, and analyst expectations are taken into account. By combining these three figures, market participants can determine if new data falls short of or exceeds their expectations, which determines their following move in the market.
When both economic and political factors are at play, a currency pair’s trend can abruptly reverse. A trader who uses the economic calendar boosts their chances of becoming aware of a shift sooner and reacting to it before other market participants.
When a trader becomes aware that a report is due to be released, the first thing they must do is determine whether or not there will be significant volatility. A trader’s reaction to an announcement is governed by their current position as well as any protective stops they have in place. As a result, leading indicators are quite important. Profitable chances offer themselves for traders who are aware of the trend that a certain currency pair will follow.
After learning the fundamentals of foreign exchange trading, you will be able to correctly interpret the most crucial economic data released on a regular basis. This course discusses how economic analysts interpret each economic data based on its context.
While trading may be complex, traders are known to learn the ropes as they go. Learning the ropes, such as using an economic calendar, can help day traders understand the market and make guided decisions.
Indeed, an economic calendar is essential for day traders or those who are interested in trading. It is a tool that can help you materialize and achieve your goals. With it, you will finally be able to put your trading strategy into action and avoid making impulsive selections.
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