How to Use the Economic Calendar to Boost Your Forex Trading Profits
To make profitable trades, you need to be able to analyze market conditions. However, learning about events that might affect the performance of your assets is just as important as analyzing the technical characteristics of the market. There are many comprehensive overviews of technical analysis tools out there, but traders (especially beginners) often forget about fundamental analysis.
One of the most important tools that help traders keep track of these events is the economic calendar. In this article, you will learn how economic calendars work, what information they contain, and how to use them in trading.
What is the economic calendar?
Looking at any price chart, you will notice that the price is always fluctuating. However, there are times when it becomes particularly volatile, rising and falling dramatically and forming jagged lines across the chart. While a certain level of volatility is normal during typical trading hours, greater instability is usually caused by external factors.
These factors include anticipated or unexpected events that influence traders' interest in a particular asset.
It is impossible to predict certain events that might impact traders’ willingness to invest in an asset. These include events of a geopolitical nature, natural disasters, and other unforeseeable circumstances. When something happens in the world at large that makes traders concerned their money may be in jeopardy, traders react strongly, which in turn affects the market.
But market prices can be affected by scheduled events as well. Economic releases, company earnings announcements, official statements, etc. significantly impact financial markets, affecting the perceived profitability of involved assets. Scheduled events occur all year round, so it can be difficult to remember every announcement that might be relevant to you. That's where economic calendars come into play.
The economic calendar is a schedule of upcoming releases that have a strong potential of affecting the price moves of many assets. As such, it is an essential fundamental analysis tool.
Even if you fully rely on technical analysis and are confident in your calculations, not following economic releases can disrupt your trading strategy. Economic calendars notify you about news about economic activity, revealing the current state of an economy and giving traders more information to plan their next steps.
How economic calendars work
While there are many versions of this tool online, you will most likely encounter calendars arranged as a table with multiple columns.
FBS economic calendar
Standard calendars include information about the type of relevant events, their scheduled date and time, which assets they may affect, and the last recorded, expected, and actual values. In some cases, economic calendars also inform traders about the degree of the potential impacts a release may have on assets.
Economic calendars also act as archives of previously recorded economic activity. You can browse several years of data and see how certain events impacted financial markets in the past.
Data contained in economic calendars
Economic calendars generally include a wide range of data related to various releases. But that doesn’t mean that traders have to follow every event. You should learn in advance what economic activities are marked in economic calendars, and which ones are relevant to your chosen trading strategy.
- Central bank decisions. Central banks have control over the monetary policy of countries and regulate their money supply. When a country is going through economic troubles, the central bank changes the interest rates. This affects the value of the country's currency on the global market and other economic aspects.
- Inflation rates. Inflation is a highly troublesome problem affecting all countries around the world. Inflation impacts many aspects of a country's economy: employment, the purchasing ability of consumers, the value of the national currency, etc. Following announcements about a country's consumer price index (CPI) and producer price index (PPI) can help you identify high inflation. Knowing about the current rates of inflation gives you insight into the monetary policy of a country in the near term and allows you more time to alter your trading strategy.
- Unemployment rates. Unemployment rates illustrate the current condition of a country’s labor market. These reports show the number of unemployed workers in the labor force who are actively trying to find jobs. High unemployment rates indicate that there aren’t enough jobs available to the public. This can serve as a signal of a weak economy or impending inflation.
- Gross domestic product (GDP). GDP is an indicator that measures a country’s domestic production by calculating the total monetary value of all goods and services produced in the country and sold on the market. GDP is reported quarterly, so you can track any country’s overall economic performance to learn whether you can expect currency appreciation or not.
- Purchasing managers index (PMI). This indicator shows the current manufacturing activity in a country. If the PMI value is above 50, the country's economy is growing and positively affecting the national currency rate.
- Retail sales. Retail sales rates are a great indicator of a country's economic activity and stability. High retail sales show that the economy is growing, while decreasing sales generally signal a problem within a country's economy. In the end, this information impacts the value of a country's national currency.
- Company earnings reports. Apart from general economic data, you can also find information about planned releases from individual companies. For example, all companies release quarterly earnings reports about their recent profits. These announcements directly correlate with a company’s business success, so this information is of particular importance to stock traders and investors.
As you see, economic calendars follow a great variety of economic releases and news, and the ones we listed above are only the tip of the iceberg. To use them to your advantage, you need to take some time to research which events are relevant to your preferred trading assets.
Advantages of using economic calendars
Knowing how to read economic calendars is an invaluable skill. Let's look at the benefits of economic calendars and how they can help you become a successful trader.
- Awareness. If you don't consult the economic calendar, you might be taken by surprise when a major release happens and affects the market. Learning about upcoming news may inform you of potential impacts in advance.
- Better planning. When you make a trading plan, you set specific rules for yourself to follow. When an important economic event occurs, your trading plan may become useless. But when you know about these events and how they might affect the markets in advance, you can prepare additional strategies and rules to take advantage of new developments.
- Comprehensive analysis. While technical analysis helps you better understand the current market sentiment, fundamental analysis gives insight into when and how the market sentiment may change. By combining various types of market analysis tools, you can get more data to make more reliable trading strategies.
Remember to be careful about economic calendar trading. If an event brings unexpected news, causing the price to move in the opposite direction of the anticipated one, you risk getting caught up in volatile markets. Always think about all potential outcomes before committing to only one strategy.
How to use the economic calendar for Forex trading
Forex trading is directly connected to the exchange rate of national currencies. Therefore, the economic releases and news related to the state of a country's economy, and affecting the value of its currency, will also impact the Forex market.
Most Forex traders use a Forex calendar to determine which releases may affect their preferred currency pairs. Generally, traders follow two main courses of action when these events occur: avoidance and price movement capitalization.
Because major economic news always causes upheavals in the financial markets, many traders prefer to avoid trading during such releases. As more traders join the market in an attempt to profit from the news, market volatility rises, making it difficult to find reliable entry or exit points.
At the same time, the volatility also attracts traders who like to capitalize on short-term price changes, e.g. by scalping. These strategies are considered exceptionally risky, so novice traders shouldn't try them.
Economic releases to follow
As mentioned earlier, Forex traders should pay close attention to news and events concerning the state of the local and global economies. Such events can include central bank announcements, inflation rate reports, labor market and GDP data, commodity prices and supply changes, etc.
It's also essential to follow news about major world currencies, especially the US dollar. USD has long been accepted as the global reserve currency, so the state of the US economy can impact all Forex and other types of financial markets.
Use a combination of tools
Knowing fundamentals is extremely important for successful trading, but using other methods to analyze the market is also necessary. While engaging in economic calendar trading, don't forget to use technical analysis tools to get more detailed information about the market and its potential.
Trading is a very challenging yet rewarding business that requires a lot of skill. But even if you build the most elaborate trading plan, you can lose money if you ignore the industry updates. The economic calendar is a great tool to help you keep up with all upcoming events related to your preferred trading assets. Easy to use, economic calendars will show you when a particular event is scheduled and how it can impact financial markets. So, to boost your Forex trading profits, check out the economic calendar on our website or in MetaTrader by clicking View – Add toolbox – Calendar and find ways to incorporate it into your toolkit.
What is the economic calendar?
The economic calendar is an essential fundamental analysis tool that provides a schedule of upcoming economic releases. All events included in the calendar have a high potential of affecting the price move of many trading assets.
What to pay attention to in the economic calendar as a Forex trader?
Forex traders should pay attention to economic releases and news about the state of local and global economies. Such events can include central bank announcements, inflation rate reports, GDP data, commodity prices, financial indices, etc.
How do I use the economic calendar as a beginner?
Beginners can consult economic calendars to familiarize themselves with trading. Note how prices change after certain events, focus on a limited number of assets, and avoid volatile markets.
How do I use the economic calendar to boost my Forex strategy?
The economic calendar is a valuable tool that can give you more information about assets you're interested in and potential price changes, allowing you to plan your steps in advance.