A calendar of economic news should be in the toolbox of every forex trader. There are three main drivers of price action. Geopolitical news, economic news and technical driven trading signals. Regardless of how a trading strategy is build by a trader, all of those aspects needs to be taken into consideration in order to fully understand why a currency pair moved the way it did. Understanding price movements will help traders increase their profits and better their overall trading outcome. Some aspects can be analyzed, others can be planned for and others need to be reacted on as they develop.
Technical aspects of forex trading can be analyzed with ease from inside the MT4 trading platform as well as other sources, online and offline. Many forex traders base their trading strategies on technical indicators or get their trading clues from time tested technical buy/sell signals. There are countless ways to create a profitable trading strategy using technical analysis which can predict the future move of price action. Once a trade has been identified using this method, price action can suddenly plunge or spike as a result of an economic news release or a geopolitical event.
Geopolitical news can’t be predicted and usually happen unexpected. The exception would be elections which are communicated well ahead of time. Forex traders tend to react to any geopolitical news as they are announced which causes wild price swings. Often those price swings are reversed as traders had more time to digest the news and more details become available. It is important for forex traders to manage their positions well during events like these. Many new traders will see their stop loss orders triggered only to see the trade play out as analyzed hours or days later. Trade management is very important after a trade has been placed.
This leaves traders with economic news. Unlike most geopolitical news, economic news are not random and are well structured and announced. They are all repetitive and often occur at the same time each month. One example would be the US NFP report which is announced on the first Friday of every month. There are hundreds of economic news which are announced every month. They range from high impact to medium impact to low impact. No trader needs to remember all of them which is why a calendar of economic news is such an important tool.
With the use of such a calendar, a forex trader has a clear view of which economic news are announced when, what importance they will have in regards to price action and which currency pair will be directly impacted. Another important aspect is that the previous data for each report is noted as well as what figure economists expect. This is very important as the amount a currency pair may move after a release is often dependant on how close the announced data point is to the expected one. The further away the actual figure is the greater the impact on price action will be.
It is critical to always be aware of economic news releases. For example a forex trader analyzed the USDCHF and identified a selling opportunity in this currency pair. Rather then entering the trade right away, it is smart to make sure that there are no imminent news releases. In case there are, it is better to either wait for after the announcement or to enter a very small size prior to the release and add to the position after the announcement. In many cases a much better entry point can be achieved and multiple entries reduce the overall risk profile. Profitable traders never enter their entire desired lot size with one trade.
An economic calendar of the trader should be viewed daily. This can help prevent making unnecessary trading adjustments. In case a trade was opened before a release and price action moved after a release, it is crucial to understand why it moved and if a trade should be maintained or closed. It is also important to make proper adjustments to stop loss levels in order not to be stopped out from a short-term price spike. The use of an economic calendar is very important as it will help forex traders increase profits and decrease risk in their daily trading operations.