Use a forex calendar to guide your trades and avoid surprises in the markets
A forex calendar is one of the most critically important tools for aspiring forex traders as even experienced professionals in the industry will refer to one daily to check for any major upcoming events or news releases.
What is a Forex Calendar?
In order to keep up with all the economic announcements and geopolitical events that affect the markets, several platforms have created an economic calendar which consolidates the dates these announcements will take place, which currencies they might affect as well as their previous results and potential impact.
Forex calendars are usually quite straightforward, and they provide the following information:
- the date and time of the release as well as the affected currency or commodity
- the potential impact of the upcoming news
- the market consensus ahead of the release
- the actual result after the news are published so traders can check historical data
The majority of forex brokers and forex-related websites provide their own forex calendar and therefore you won’t have any trouble finding one. However, it’s important to note that not all forex calendars provide the same information as some are more detailed than others.
That being said, even a basic forex calendar which notes the date of the upcoming news or event will work just as well. Beginner traders, however, may prefer a more extensive one which also explains what the event is about and the experts’ consensus regarding the event.
Since, market volatility is key for a profitable trade, a forex calendar can inform traders ahead of time of any upcoming events that may inject higher volatility in the market. While high volatility can sometimes be considered risky, the opposite is even worse as when the market is flat, there is no price movement for traders to profit from.
Below is a list of the major events that typically generate a lot of price action:
- Non-farm payrolls (NFP)
- Gross Domestic Product (GDP)
- Interest rates
- Consumer Price Index (CPI)
- Produce Price Index (PPI)
- Retail Sales
- Trade balance
- ISM data
These events are highly anticipated by forex traders as they are market drivers and provide a lot of volatility which translates to more opportunities for profitable trades in the forex market.
Some news and events are more impactful than others of course and arguably the most important event to watch out for is the Non-farm payroll report which always comes out on the first Friday of each month and is a valid indicator of the strength of the US economy.
Don’t forget that markets will react nearly instantly and most of the time quite violently if the report doesn’t meet the expectations of investors and therefore you should always ensure that you are using stop loss and take profit parameters to minimize your exposure to risk when trading news events.
Typically, when an awaited report’s numbers aren’t too far off the expected result, the market’s will likely not react at all. However, if the numbers don’t coincide and there is a substantial difference between the actual and the expected result, we can expect high volatility as the buyers and sellers duke it out for dominance.
In fact, this rampant speculation following market events may cause a rapid appreciation or depreciation of the value of a security even though there may be no real underlying reason for the such a movement. However, the market will always correct itself to normal values not long after the dust has settled.
Trading the news
The common rule of thumb when trading these news events using a forex calendar is to buy the affected asset if the results of the report are better than expected while if the numbers disappoint, you should sell instead.
It’s also important to note here that due to the high risk of trading during the news, the market may suffer liquidity issues where trades aren’t executed on time as there aren’t enough sellers or buyers to complete a transaction. Therefore, you should be using solid risk management methods to protect your investment such as never risking more than 3% of your total account on a single trade and considering closing a position before the news are published in order to avoid the market’s violent reaction.
If you are interested in learning more about how trading news events aligns with your risk appetite, you can always get in touch with your personal trading specialist for guidance.