How to use a forex calendar
The foreign exchange market is constantly changing direction and moving back and forth. Sometimes these shifts are so frantic, they might seem impossible to understand. Fortunately, with the help of the right tools, you can make sense of what occurs on there on a daily basis and produce accurate and proficient forecasts that are sure to increase your gains.
One of the most effective implements to serve this purpose surely has to be the calendar. With its assistance, you can always be up to date with what is going to happen on the market, and when. Having this information readily available makes all the difference in the world in terms of risk management. Here is what you need to know about forex calendars and their usage.
What Is a Forex Calendar?
Primarily known as an economic calendar, this type of tool displays all the scheduled events pertaining to the financial market. The most common ones relate to interest rate decision, gross domestic product, and non-farm payroll numbers. Because the economy is a dynamic field, plenty of new releases happen each week, which is why keeping up is essential.
In fact, these changes sometimes occur at such a rapid pace, more than one event will happen during the span of a single day. Fortunately, the economic calendar lists them all, complete with the exact date and time they will happen. However, some events have an almost imperceptible impact on the market, while others trigger a dramatic shift. How can you tell which is which?
Fortunately, most online economic calendars grade each event separately according to its importance. Thus, an even with a minor impact on the financial climate will most likely receive a ‘Low’ rating, or lack one altogether. When a release can potentially affect trading circumstances in a visible way, then it is of ‘Medium’ importance.
Such events usually have a yellow star or dot next to them to signal this to forex traders. Finally, red stars or dots imply releases that will have a major impact on the market. These are the ones which usually determine dramatic variations in the direction of trends, price fluctuations, and so on. Bold traders usually wait for this to make their move.
Volatility is typical around red events, which causes many traders to cancel their orders out of fear of severe losses. This causes liquidity to drop, which in turn prompts price values to move frantically back and forth for a while before assuming a direction. Due to the increased adjacent risk, it is wiser to allow this to pass before deciding to trade one way or the other.
How to Use It for Profit
According to expert trader and coach Haris Mujkanovic, an economic calendar needs to be checked every morning. This will help you see the bigger picture concerning which currencies will be impacted by releases that transpire during the day. In this way, you will know which positions to close and which ones should be kept open for profits to start coming in.
But how can you tell whether a release will go in your favor or not? Fortunately, the economic calendar also offers previous and forecasted numbers for each domain. For example, when a release turns out to be higher than the GDP prediction, then the base currency will benefit from this. On the opposite end of the spectrum, when the release is lower, it’s time to get out.
Still, this is not a general rule that applies to every single kind of release. In the case of unemployment numbers for instance, it is better for the real numbers to be lower than what has been predicted. Thus, being a clever trader and making proper use of the economic calendar also means being able to get a feel for the situation and how it should go down.
Making money with the help of a forex calendar is thus based on using this tool in order to reduce risks. The market is rather unpredictable sometimes, so it’s essential to have an additional ally on your side to help with forecasts. Still, you should never fully rely on it. Financial factors behave illogically sometimes, and this is something we all need to accept.
The Bottom Line
Predicting what will transpire on the foreign exchange market with one hundred percent accuracy is almost impossible. Nevertheless, when you have the right tools on hand, you can get as close to a precise forecast as possible. One of the most important of such instruments is the economic calendar, which should be consulted every morning. With its help, profits will start coming in faster than ever.