What is Economic Calendar?
The economic calendar is one of your best allies as a trader. You'll just spend one minute (or less) with it each day, but that one minute—every day—is critical if you want to be a consistently winning day trader.
Creating a Financial Calendar
An economic calendar displays upcoming economic and financial market news events and data releases. New GDP growth rate data, non-farm payroll data, and interest rate choices are all examples of what an economic calendar may contain.
These economic data releases occur frequently—at least once a week on average, and perhaps every day during exceptionally busy periods. These events, as well as the scheduled release time, are recorded on the economic calendar.
Each event is given a grade, which varies according to whatever economic calendar website you use. Minor occurrences that are projected to have a minor market impact are either labeled "Low" (as in "low effect") or aren't labeled at all. The term "Medium" is used to describe events that may have a market impact, and it is commonly indicated by a yellow dot or a yellow star next to the event. Yellow denotes the need for care at this time. A substantial news/data release with red stars, red dots, or "High" designations is extremely likely to affect the market significantly.
Economic Calendars: An Overview
Economic calendars generally focus on when a country's economic reports will be released. Weekly jobless claims, reports of new home starts, scheduled interest rate changes or interest rate signaling, regular reports from the Federal Reserve or other central banks, economic sentiment surveys from specific markets, and hundreds of other events are examples of events listed on an economic calendar. The majority of the events mentioned are either forecasts for future financial or economic events or reporting on previous financial or economic occurrences.
The economic calendar serves as a source of information and trading possibilities for traders and investors. Traders frequently time their entry and exit of positions to coincide with either an event announcement or the high trading activity that generally precedes a scheduled announcement. A trader who wishes to take a short position might benefit from following the economic calendar. If the trader estimates the type of news accurately, she can initiate the position just before the planned announcement and terminate it within hours of the announcement.
Getting a Glimpse of Economic Calendars
Free economic calendars may be found on financial and economic websites. These calendars, however, differ from site to site, and though they are referred to as "the economic calendar," the actual calendar listings are determined by the website's emphasis and the events that its viewers are likely to be interested in. For example, many websites' economic calendars exclusively mention events in the United States since these events have a significant market influence. Other websites allow users to create their own economic calendar by using filters to show or conceal events.
While these free calendars might be a good place to start, most traders create their own calendars depending on the kind of trades they enjoy and the asset classes and geographies they are familiar with. Furthermore, a customizable economic calendar isn't restricted to government and central bank announcements. For example, a trader may build an economic calendar around important releases from oil-producing countries, as well as the weekly petroleum status report from the US Energy Information Administration and the quarterly filing dates of the oil-related firms he monitors. An economic calendar becomes a configurable trading tool, similar to an indication alert, in this way.
High-Impact Data/News Releases Put You at Risk
The events highlighted red are the ones you need to be aware of as a day trader or even a swing trader. Regardless of whether the data comes in above, below, or exactly in line with market expectations, there will be volatility surrounding the event.
Traders are aware that these events cause market volatility, and they may elect to take a break by canceling their pending orders while the markets swing. These canceled orders result in a decrease in liquidity just before a market-moving event. Because there are fewer orders to absorb market buy or sell orders (or stop-loss orders) caused by the occurrence, the price will frequently "whipsaw" back and forth before settling into a more consistent trend.
Using the Economic Calendar to Lower Your Risk
Before you start trading, check your economic calendar and take down the timing of the important data releases.
In normal market circumstances, you should be aware of your risk on each and every trade. Each transaction should have a risk of less than 2% of account equity, ideally, 1% or less, defined as the difference between your entry and stop-loss prices multiplied by the position size.
So long as you're trading a stock or other markets with a tight bid/ask spread and high liquidity (enough shares or contracts) at each price level to absorb your orders, your stop-loss order will usually get you out of the trade at the price you expect. Things may, however, significantly shift when high-impact data is disclosed. There's a good risk you'll slip up (a worse-than-expected price on an order). For example, a deal that was planned to be a 1% risk deal might wind up losing 5% of its value.
In a low-liquidity situation, it's impossible to predict what data will be exposed or how many orders will be placed once it's released. Professional day traders generally close out their forex, stock, or futures positions three to five minutes before the high-impact data is released due to this uncertainty. They also wait until the data is revealed before making new deals. It's easy to avoid that time of heightened danger since it's scheduled, and it's typically the wisest option.
You may hold your options holdings through a large data (or earnings) release if you day trade options. Many options methods are created specifically for trading these sorts of occurrences. Options, on the other hand, are a little different from other markets. Your risk is capped once you buy an option (pay the premium)—the premium you paid is the maximum loss possible. Slippage is possible when buying an option or closing a deal, but you can't lose more than the premium you paid.
A Calendar of Economic Events for Various Markets
There is an economic calendar for everyone who trades forex, futures, or stocks. Finage Economic Calendar is a useful resource for forex and options traders. Check the US earnings calendar if you trade stock options. Earnings, like economic data releases, have a substantial influence on pricing.