Often times during trading hours the Forex market makes HUGE and I mean HUGE moves in a very short period of time. For a Forex trader, HUGE moves in the market can mean HUGE gains in capital....$$.....Sometimes these moves are unexpected but typically these moves are anticipated by traders. How does the Forex trader know about these HUGE moves? Well thanks to a HUGE resource called the Forex Economics Calendar we can plan for these events.
What is a Forex Economic Calendar?
Well a Forex economic calendar is a calendar of governmental events that is used by Forex traders to track important announcements or events. Some of these reports tends to cause the market to become very volatile. Information such as the country, the time, the date, the expected outcome, the consensus and the actual outcome of each event is document in a calendar format. Which is very convenient for the Forex trader.
The Forex economic calendar is used by fundamental and technical traders. Fundamental traders relay very much on this calendar because their trading strategy is heavily dependent on it. The technical trader’s use of the calendar is not as dependent on the Forex economic calendar but Forex technical traders do need to be aware of upcoming events that will occur during their trading session. Although it is believed that technical analysis is already factored in these events, the technical trader still needs to be aware as to when these events will occur. These events influence where the Forex trader will place their entry, their exits and their lot size.
Key Fundamentals Announcements every Forex trader should know:
- GDP: Gross Domestic Products-the GDP gauges the health of a country’s economy by measuring the value of all the goods and services that country produced in dollars. Typically quarterly and/or yearly. By definition alone I hope you can see why the GDP would be a big factor in market that deals with the exchanges of currencies. If the report comes back better than expected than more than likely the price of that currency will be bullish due to the fact that the economy of that country is in great condition—making money. Knowing this information the Forex trader can decide if and when it is smart to take a long position. TRADE WELL!!
- CPI: Consumer Price Index-the CPI is the weighted average of prices of a particular group of consumer goods and services. This announcement can help identify when an economy is experiencing inflation and deflation. The CPI measures the following sectors monthly: Food/beverage, Housing, Apparel, Transportation, Medical care, Recreation, Education, and Misc Influences. The measurement of whether inflation or deflation is occurring can help identify if the currency of the reported country will rise or fall. It is to the Forex traders advantage to be aware of the value of the currency. TRADE INFORMED!!
- FOMC: Federal Open Market Committee-is a United States committee that determines the direction of the monetary policy. Be aware that the FOMC meet at least every other month to adjust the monetary policy which in turns affect the changes of interest rates which in turns affects consumer spending, which in turn affect the economic growth. The FOMC usually creates HUGE movements in the Forex market. For this reason some traders only trade this report, its very lucrative. TRADE AWARE!!
- NFP: Non-Farm Payroll - is the report of all employment in that country EXCEPT for those working on farms, that is identified as an unincorporated self-employment, have private employment, have non-profit agencies, or is a part of the military/intelligence sectors. The NFP report comes out on the 1st Friday of the month. The NFP usually create lots of volatility in the market. This is another really great report to profit from. TRADE SMART!!
- Interest Rate Decision: Interest rates directly affect spending in all aspects. TRADE KNOWLEDGEABLE!!
Proper education will teach the Forex trader how to implement the proper strategy to increase your chances of gains. Each report may have to be approached with a different mindset so be aware of how the outcome of each report fits into your strategy.
The Structure of the Forex Economic Calendar
The Forex Economic Calendar is divided into about 8 columns. These columns are the date, the time the report is released , country/event name, the impact, previous percentage, consensus, actual percentage results and sometimes a notification button that allows the Forex trader to set an alert for that report. Besides obvious information such as the country affected and the time of the report the most important piece of data is the impact of the report.
As a Forex trader your goal, of course, is to make money…and LOTS of it. So for that reason it is beneficial for the Forex trader to be aware of HIGH impact reports. Now this is not to say that medium level and maybe even low level reports doesn’t cause big moves. But the highest probability for a major boost in your capital is to trade the HIGH impact reports.
Volatility and Fundamental announcements
So the main point I am trying to stress here is that, you as a Forex trader, need to be aware as to when reports are coming out, your position when a report is being released, and you should be aware that the market will most likely experience volatility during HIGH impact reports. Volatility can also occur with medium and low impact reports, just monitor the markets behaviors during the release of these reports and you will soon learn which reports are worth trading.
So my question is do you actually know what volatility in regards to the Forex market mean?
Volatility is when price actions moves so quickly and so unpredictably that the trader have to be very methodical about their trading strategy. During reports price action moves so drastically that it can be overwhelming for new traders. Volatility during reports often lends itself to major whipsaw movements in a matter of seconds. Seriously, price action tends to be very sporadic. Spreads often increase drastically. Forex traders need to very cautious when trading the news. There is no doubt that trading fundamental announcements successfully can lead to HUGE gains, but this trading strategy can also lead to HUGE losses. Trading the news is exciting, highly lucrative and fast paced but it can also be overwhelming, very risky, and unpredictable and for the latter reasons, trading violate reports is best suited for the experienced trader. Proceed with experience!
Where can Forex Traders find Economic Calendars?
A simple google search will lead the way to tons of economic calendars. Be aware that not all economic calendars are created equal. Here are a few of my go to websites for reviewing the Forex economic calendar.
Tips for Trading using the Forex Economic Calendar…
To increase the odds of successfully trading the Forex Economic Calendar the Forex trader should:
- Obtaining proper education.
- Understand the fundamental announcement that s/he is trading. Be familiar with the typical movements that occur before, during, and after the announcement.
- Stick to your strategy: This is not the time to be trying a new strategy without prior backtesting. Stick to the plan that you have already backtested and understand.
- Never trade fundamental announcements without a stop loss. A stop loss will protect you from losing more capital than you are prepared to if your trade goes against you.
- Trade fundamental announcements with caution. Understand these announcements cause major moves in the market, which means price action moves very quickly. Tend to your trades, protect your capital, follow your money management rules.