Why Is Economic Calendar Important for Forex Traders

Economic calendar is one of the most important tools to a success when trading Forex as staying way ahead and being able to predict what impact important events and changes in the forex world may have on certain currencies is an effective way to make a profit and enjoy a consistent income.

While experienced traders are generally conscious of what’s ahead on the economic calendar and understand how to interpret the numbers, newer traders, on the other hand, often expose their positions to unnecessary losses around news time. In this article, we will demonstrate the benefits of using the economic calendar to beginner traders.

What Is Economic Calendar

An economic calendar shows the scheduled news events or data releases related to the economy and financial markets, including new GDP growth rate figures, the latest non-farm payroll numbers, and interest rate decisions. There are loads of these economic data releases—at least once a week on average, and sometimes every day during particularly busy weeks.

The impact of the forex calendar can be partly as in just effecting some currency pairs or as a whole, some events may be so big they impact the whole market. Whether you are trading forex or any other asset class, economic data could impact your positions in the market, so it is important to keep an eye on the calendar throughout the day.

Importance of Economic Calendar for Trading

Below are the top five reasons why you should follow an economic calendar:

1. Be aware of upcoming economic events

The most basic but useful feature of an economic calendar is that it keeps you one step ahead when trading online. You will be informed of any economic events that will take place in the commodities market, the forex market, or any other trading market. Free trading news or news about economic events will help you a lot in making money in trading.

2. Understanding how the market operates

A benefit of the economic calendar that greatly improves beginner investors is understanding how the global markets work. Without actively making any trades, a new starter in the trading world can monitor the calendar and live charts to make the connections of what economic events are impacting which markets. Studying the movements can give you greater insight into a potential market you may want to enter and can teach yourself where to find a great entry and exit point.

3. Have future planning

Forex economic calendar allows for forwarding planning. For example, if the Nonfarm Payroll report will be released, forex traders will know that this indicator has the potential to move the forex market substantially. So with the awareness of NFP timings, forex traders can plan effective forex trading according to the news.

4. Mentally prepare yourself for any market changes

Live trading shows you various changes in market sentiment, market trend or asset prices. You cannot prepare yourself when you see a sudden change in the market.

Whether you are following a long-term trading approach or day trading. An economic calendar helps you to mentally prepare for various events in the market.

5. Risk Management

Risk management is one of the key elements of trading that all investors should include in their strategy. Extremely volatile market conditions are a risk in itself and the economic calendar presents an opportunity to highlight any upcoming events that could cause that type of volatility. Being aware of these events will allow you to plan your trades accordingly without further complicating your trading strategy.

Having a strict exit strategy like scalping, in place could mitigate the chance of risk. In the chance of high impact news events happening which could see huge spikes in the market, this strategy focuses on taking small profits off small price changes. So in case an upcoming event creates a huge swing in the market, you have already taken profits along the way.

How to Read An Economic Calender

In general, there are two main categories of events highlighted by the forex calendar and these are the predictions of future financial and economic events and the reports of recent financial and economic events. Both categories provide valuable information that can significantly affect your forex trading strategy and have an impact on the results you get when trading with currency.

Not all economic events have a significant impact on the forex market. There are two events, which are the most important and most effective:

Non-Farm Payroll

Non-farm payroll tracks the U.S. employment rate for the majority of the U.S. labour force. For instance, self-employed person, farmers, loss-making businesses, federal intelligence and military factions. The Bureau of Labor Statistics released these reports on the first Friday of every single month.

NFP reports show data on the number of new employment has created after the last month’s reports, the total national jobless rate and the national labour force participation rate. Besides, the quantity of Americans who are effectively looking for employment or had lucratively utilised. Each of the three measurements viewed as a pointer of the country’s general financial wellbeing. Also, significantly affect both market discernment and the overall estimation of the U.S. dollar.

Central Bank Interest Rate Decision

Major banks interest rate decisions affect forex traders risk or reward while taking a conferred currency or holding a position. Preset interest rate decisions or report declarations by any of these major banks will undoubtedly impact trading psychology and increment market unpredictability for related forex pairs.

When using the economic calendar there are some important indicators that every investor needs to understand. The two main economic indicators to understand are leading indicators and lagging indicator.

Leading indicators

Leading indicators are any measurable or observable variables that look forward at future outcomes and events, predicting a movement or change. With a leading indicator, you are basically trying to predict the future, forecasting the timing, duration, and significance of future business and economic trends. 

Lagging indicators

Lagging indicators are the opposite of leading indicators, where instead of looking forwards you are looking back at whether the intended outcome was accomplished. With a lagging indicator, you are able to confirm whether a long-term trend or shift in the economy has actually happened. Lagging indicators are typically easy to measure, identify and compare against though one downside is that they may provide important insights too late, with no time to do anything about them.

Conclusion

Once you’ve been trading for a while and learned the basics of forex, you’ll get a feel for how economic events will affect your portfolio. Staying up to date with the economic calendar gives both beginners and advanced traders an edge in the market.

For novices, being aware of more volatile days will guide you on when to steer clear of trades. An economic calendar can also help less experienced traders understand how markets behave around the time of news releases – a critical and ongoing learning process. More experienced traders also tend to avoid volatility around high-impact events.