There are many events and underlying influences that affect a currency pair price. If you're not using an economic calendar, you might sometimes feel like you're wandering through the wilderness without a map or compass.
This article will explain why traders place such high importance on the economic calendar, and how you can use it to help significantly improve your trading performance.
Why is the economic calendar so important?
The economic calendar is a list of events that cause the highest volatility in the markets throughout the year. Since a market flatline offers no opportunity for profit, the peaks and troughs are the most lucrative time to trade. Predicting when they will occur and in which direction should be your goal as a trader.
The calendar includes the date and time of the economic news release, the currency that will be affected, and the level of importance: high, medium or low. Any of the events on the calendar can generate massive profits or losses.
What to watch for on the calendar?
Financial events and news often trigger a change in the direction of a currency pair within minutes of the announcement. If a release is based on a eurozone event, then the euro is going to be affected, which opens the doors to trading on all euro pairs. It's not always that simple though. If the news is related to China, the Australian dollar could be influenced due to the high volume of Australian exports that go to China. The question is whether the release is indicating a weakness or strength.
Fearful traders often avoid trading prior to news releases, as there is often a drop in liquidity. This fall in orders can be likened to the calm before the storm. Prices often spike and trigger stop orders within seconds of the release. It is recommended to check your economic calendar every morning as a routine before picking your pairs for the day.
Setting up your trades
Savvy traders rarely risk more than 3% of available equity or less. When reports are released, traders face the risk of slippage and often get worse prices than the executed order. You might consider closing positions five to ten minutes before the release just to be safe. Jumping on a currency pair right after a release can produce incredible gains, but the oscillations can be dramatic. If you're using high leverage you can be at risk of a margin call in mere minutes.
To rephrase the common saying, with great reward comes great risk. The calendar can be used in two ways, depending on what kind of trades attract you. If you are more of a hit-and-run trader or day trader, the market volatility of a news release can offer excellent opportunities for speculators with a high appetite for risk. Set your leverage at a modest or conservative level, set generous stop loss and take profit orders, and make sure you have plenty of equity to ride out the initial storms. Alternatively, use the calendar as a warning system. Close your orders before the news releases, wait for the prices to stabilize, then open new orders based on what the release suggests.
To know more about the calendar and how to benefit from coming data releases, sign up with Exness and get access to the most updated educational library, expert-hosted webinars, and much more. Exness encourages long-term relationships with traders and makes every effort to help them benefit from expected volatility.
Use the Exness economic calendar today, avoid crashes, and start boarding the money train before it leaves the station.