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AB16 - What is a forex economic calendar?

"A calendar as you know is a schedule of events. In the financial markets, an economic calendar has the same meaning. The only difference is that an economic calendar is a schedule of all the important economic events that are due to come out over a period of time. A forex economic calendar is basically one such calendar that forex traders use. In this article, we will introduce you to what is a forex economic calendar. You will learn about its importance and it can help you in your trading in the long term. Following economic news and fundamentals might not seem that appealing for many traders initially, but it is something that should be followed by traders. Understanding the forex economic calendar alongside technical analysis can give you a full picture of the markets. It will help you to not just become a profitable trader but will also show you about the ways you can combine both technical and fundamental analysis in your trading approach."

As a forex trader, chances are that you will come across mostly about technical indicators and technical analysis and the strategies that come with it. But it is also equally important to pay attention to the fundamental factors behind the price movements.

Both technical and fundamental analysis are two different fields of study in the forex markets. But they are both important if you want to get the full picture of the markets. Understanding the fundamentals will help to keep you away from the markets when they are choppy.

Fundamentals also tend to dictate the trends in the markets.

By now, you must be wondering how you can keep tab on the fundamental developments in the forex markets. This where you will make use of what is called a forex economic calendar. The general term is an economic calendar. As the name suggests, the economic calendar is a collection of all the schedules economic events for the day.

The economic calendar will basically outline what releases are coming out over the day, what markets they will impact and the amount of influence it will have on the markets as well. Using the economic calendar, you can either choose to time your trades or use it as a guide to avoid the markets when they get too choppy.

A forex economic calendar is quite important, and it should form a key part of your trading toolkit. Think of a forex economic calendar as a map to the markets. Without having a map, even if you are the best driver, you will not get anywhere.

How does a forex economic calendar look like?

Below is an example screenshot of a forex economic calendar.

 AB16 01 Forex Economic Calendar

Example Forex economic calendar (Source: Forexfactory.com)

As you can see in the economic calendar, is comprises of the date and the time when the economic event is scheduled for release. You also see the currency that it will impact and the level of importance.

Then there is the forecast, actual and previous columns. These are nothing but the results from the previous economic release, the forecasts or the estimates for the current economic release and finally, the actual number.

There are a number of economic events that are of high important. Some examples include the GDP, inflation, unemployment report, central bank interest rates decision and so on. When these news events are released, the markets tend to react to them strongly.

Therefore, when you trade the short-term charts during such news releases you can see a lot of volatility. If you trade with a variable spread broker, you will find that the spreads (the difference between the bid and ask prices) also rises and falls.

Why should you use or follow a forex economic calendar?

Forex economic calendar is a great way for traders to plan their trading day or the trading week. It will give you an idea into the main events that are scheduled to take place. You will often find that prices can move to key support or resistance levels around such news releases.

There are specific trading strategies that are designed to be traded just around news releases. Examples include trading the U.S. employment report known as the nonfarm payrolls report and central bank interest rate decisions.

As a trader, you should make it a habit to look at the economic calendar before you start trading. Most often, you will find a lot of market commentary as well on what to expect from the release.

The economic releases are watched by the central bank policy makers. Therefore, the outcome of the economic releases from the economic calendar tends to play a role in shaping the expectations of whether a central bank will raise or cut interest rates. This in turn tends to influence the value of the currency in question.

When you have an understanding of how the economic calendar works, you can also start timing your trades. This will allow you to ride the volatility that comes around the important forex news releases. At the same time, you should also pay attention to your existing trades as there is a good chance that your stop loss levels could be hit due to the unexpected volatility.

In conclusion, a forex economic calendar is an important toolkit that every trader should follow. A forex economic calendar gives you a guide to the important news releases that are scheduled for the week or during the day. It can help you to plan your trades and also shows you times when you can expect to see important announcements that can influence the exchange rates.

Read 552 times Last modified on Wednesday, 19 June 2019 11:01

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