Search
Wednesday 11 December 2019
  • :
  • :

How to use a Financial Calendar to Improve Your Trading

How to use a Financial Calendar to Improve Your Trading

Successful forex trading depends on correctly anticipating market movements. In basic terms, forex traders take advantage of the change in the rate of currency pairs to generate profit. But how can you stay informed and keep yourself one step ahead of the market movements? That’s where a financial calendar enters the picture.

What is a financial calendar and why do you need it?

Every day, there are economic events around the world that can potentially move the markets. These events are listed in a financial calendar. Normally, each event is a statement containing economic data such as:

  • Gross domestic product (GDP)
  • Interest rate decision
  • Consumer price index (CPI)
  • Purchasing manager’s index (PMI)
  • Employment data (Unemployment rate, number of job changing)

When they’re released, these events can move the value of currencies. Interestingly, the forex market is a complex loop system where a single piece of news from one country can spark a domino effect across the whole market. Therefore, keeping track with economic events is necessary for all forex traders. A financial calendar is a perfect tool for this task, but not every trader knows how fully benefit from it. The following steps will show you how to optimize it.

How to get a financial calendar

Traders can create their own financial calendar, but it’s time consuming searching for and documenting upcoming events. Instead, financial calendars are offered by some forex brokers, which are the most common solution.

A good financial calendar should keep you up to date with financial events all around the world automatically, and feature basic categories to help you sort the events, such as:

  • Time
  • Nation
  • Event name
  • Volatility level expected
  • Actual and previous data

Beyond a normal calendar, each event in the financial calendar has its own description, and previous events results.

 

Financial calendar. Source: easyMarkets

How to sort events

A calendar is swarmed by statements, reports, indicators each of which has a certain significant level and drives the market in different degrees. Therefore, you should focus on some events that have strong impacts on the currencies you are trading.

In addition, there are two types of events:

  • The events that directly affect your trading currency pairs/assets. For example, you trade the EUR/USD, the interest rate decisions by the European Central Bank (ECB) and the Federal Reserve (Fed) are direct ones.
  • The events that indirectly affect your trading currency pairs/assets. For example, the statements related to the trade war between the US and China can lift the price of JPY or CHF since both are safe haven currencies.

How to assess events

Knowing the event is superficial but anticipating the later market direction is essential. Before every event, there are forecast and analysis from financial experts; based on that, traders who predict the following movements of their trading currency pairs precisely are individual likely to have winning positions. Moreover, the sooner they response with the change in the currency pairs’ rate, the more profit they can generate before others get invited, join the feast and finally saturate the market.

Apart from that, remember that actual data can be different from the forecast, and this is a double-edged sword. A typical example is the unemployment rate. Assume the estimated unemployment rate of the US in this month is 3.5%. If the actual rate is lower than 3.5%, it can be a positive signal for the US economy causing its USD to rise in price; in contrast, if the actual rate higher than the prediction, it can result in the reverse situation.

Conclusion

Working with the financial calendar frequently, you can quickly follow the trend of the market and make more precise trading decisions. Keep in mind that you must always see the big picture and not a single event, to fully take advantage of the financial calendar.