How to Read an Economic Calendar for Forex?
Many investment websites have economic calendars, which contain and update the release date of economic data or important economic events around the world. In this article, ZFX explains what an economic calendar is and how to read it correctly, and how it can be useful to forex investors.
What is Economic Calendar?
Most economic calendars contain the following information and features:
- Future and past economic events and indicators in most countries of the world
- Introduction to economic events
- A historical chart of relevant data
- Actual value/predicted value/pre-value
- Filter by country, date, event category, impact, or keyword
- Adjust to user’s local time
Economic Calendar Example
In the economic calendar, we can see which countries are publishing data, what data are published and when will the data be published on each trading day. Most of the calendars would also show:
1) Importance (Imp.) - How important the data are to the overall market
2) Actual value, Forecast value, and Previous value of data
1) The investment market attaches great importance to the forecast value of data. because the final result is more based on the gap between reality and the expectation than the comparison of the previous result;
2) Some less important data often have no forecast value;
3) The forecast values may be inconsistent in different economic calendars. As the expected market value is a statistic and are determined by economists and market participants, different calendars may take different median values as a reference.
The Importance of the Economic Calendar to Investors
The forex market is the largest trading market in the world. Due to the different opening hours around the world, the forex market can be traded 24 hours a day and 24 hours a day, which also means a wealth of trading opportunities.
The most popular forex trading hours in the world is the overlap between the London market and the New York market, that is, around 12:00 to 16:00 GMT, during which major exchange rate fluctuations usually emerge.
In addition to the transaction time, information is also an indispensable factor. In the forex market, investors will pay close attention to the economic performance of each country. The development of data is an important guide for medium and long term investment.
Since the US dollar is the world's main currency and trading volume is the largest, the U.S. data is naturally the data that investors pay the most attention to. For example, the U.S. non-farm payrolls report, the U.S. GDP data, the U.S. manufacturing and services PMI, the U.S. consumer price index, and so on, all of which tend to increase volatility in financial markets.
Tips for Reading an Economic Calendar
Investors who are prepared will watch some risky events closely before entering the market. Economic calendars allow investors to infer data outcomes from pre-data and forecast data, or even avoid data release time and use them to plan trades accordingly. Here are some tips to increase your reading efficiency:
1 / Utilize the filtering function
Investors who are more focused on trading specific products can also turn on filters to exclude irrelevant or unimportant data.
2 / Asian investors can read the calendar during the day
Generally speaking, there will be no big fluctuations in the Forex market in Asia, unless there are sudden events or unexpected results in mainland China data.
As a result, investors in the region can focus on reading the economic calendar during the less volatile part of the day for data to be released or speeches by key officials in the European session (around 3 p.m. Beijing time) and the U.S. session (around 8 p.m. Beijing time).
Given that there is a lot of German or eurozone data coming out during the day, we would expect trading volume to increase among currency participants during this period, and euro volatility to increase as a result of the data, with a relative increase in the opportunities for entering the market and marking quick profits.
Use of Economic Calendar for Forex Trading
1 / Use data-induced volatility to increase profit opportunities
In the section on how to read the economic calendar, we learned that you can use data-induced volatility to increase profit opportunities. But while such a trade is indeed profitable, the risks are also high. After all, there's a lot of uncertainties in the results of the data that it is impossible for a smart investor to make accurate judgments every time, let alone predict the subsequent movements of the market.
Especially on the data side, we often encounter the embarrassing situation of “the market does not respond to news events". If you misjudge the data and trend, you will directly face the dilemma of loss, not to mention the occurrence of "false breakthrough" and other situations. This is the most common risk in the data market.
2/ Hedging effect
For more conservative investors, the economic calendar is a good way to avoid risk. For example, try not to trade until big economic data are released, or try to close all positions before they are released. Almost all financial products move in response to important new events, so investors can place protective stops if they hold relevant positions to prevent big swings from turning a position into a loss.
3 / Use past data to predict future trends
Many economic calendars also provide a search function to track changes in the data over the past few years, as well as to view detailed basic statistics for predictions.
In a nutshell, an economic calendar is a database and schedule that tries to help investors "get ahead" and "prevent risk."
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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted in accordance with this article. Please be firm in your thinking and do the corresponding risk control.