The Economic News Calendar, otherwise known as the forex news calendar, plays a major role in the life of every forex trader in the world, be that trader a retail trader or a trader part of an institutional trading network. The forex news calendar is a schedule of fundamental events that affect the trading landscape of financial markets.
In the forex market, there are certain announcements that are made on a daily basis which highlight very important events in the global socio-political and economic arena. These announcements emanate from government agencies, central banks, private organizations, lobby groups and can be said to serve as a benchmark on which economic policies are made and strategic moves are made in the business and political landscape. For instance, the onset of the global financial crisis prompted governments across the world to respond in a political manner according to how their countries and governments were affected by the events of 2008 to 2010. In the Eurozone, the sovereign debt crisis prompted change of governments, implementation of policies and economic decisions. In the US, we saw the emergence of the Troubled Assets Relief Program (TARP), several huge bailouts and the quantitative easing policies of the Federal Reserve Bank. Several of such decisions were made across the world, changing the look of the economic news calendar as we know it forever.
The globalized nature of today’s world means that these announcements directly impact the global economy, with wide ranging effects on how we live our lives and how future events will shape our future. Traders in the financial markets have come to understand how these announcements affect the investing climate in a country, region or the global markets, and depending on the tone of these news announcements, a positive or negative sentiment on a currency, a market or an economy can develop. This in turn leads to investors trading assets in a certain way as a result of the volatility that ensues. These announcements are known as market news releases.
The market news are not released in a random fashion, but rather are released according to a well-planned schedule month after month, in a full year’s cycle. This schedule or timetable as it may be called is referred to as the Economic News Calendar or Economic Calendar. It is also called the forex calendar or forex news calendar, because most of the news that is shown in this calendar impact the forex market immediately and directly. In truth, the economic calendar affects all markets, though the degree of affectation differs.
Usually at the beginning of the year, the calendar for the year is released. This can then be viewed month after month, or on a weekly or daily basis for the purpose of trading the news. News trading is the trigger for market movements, so using the economic news calendar is a MUST for every trader who wishes to succeed in the market.
Components of the Economic Calendar
What are the components of the Economic News Calendar? What is it about this tool that traders should look out for? A look at the snapshot below, taken from Forex4you’s version of the calendar will give some insight as to what the economic calendar is all about.
From the snapshot, the following can be seen clearly:
- A date calendar is shown on the left hand side of the snapshot. The positioning of the date calendar is not important. What is important is that traders can choose to view the date for a particular day, a month, or a week. Some calendars like the one above allow traders to shuffle between months, weeks and days or even search for a particular news item using a particular date, all with the touch of a mouse button. A trader can select any date of choice to view the tradable news items for that month.
- A bigger display of the calendar of news items takes the centre stage. This is where traders can see the news items from the different countries and all information pertaining to them.
When it comes to the information pertaining to the news releases, we have the general information as well as specific information pertaining to each news release.
Here is a detailed description of the specific components of the Economic Calendar:
- The date and time of release for each news item is featured. Here, the trader can see clearly the time of release for each news item, which is usually listed in US Eastern Time as the default mode. Some forex news calendars possess tools that allow the trader to change the time settings to match their local time. However, the global standard for reference is Eastern Time in the US. You therefore need to know how far away from US Eastern Time your time zone is in order to know what trading times you should be looking at.
- The news release itself. You need to know what exactly you are trading.
- The currency of the country of origin for each news item. This is the currency that is usually impacted by the news, so traders will look out for the pairings of the affected currency to see which pairs are more tradable than others. Usually the ISO abbreviation of the currency will be shown, or the flag of the country with the affected currency will be displayed.
- The degree of market impact of the news release. This is an indication of how impactful the news release will be on the forex market, measured by the degree of market volatility and range of movement of the currency pair. News releases on an economic calendar are classified into low-impact (green colour), medium-impact (amber colour) and high impact news releases (red colour). Some calendars will use the colour codes beside the news items while others may use stars (*) to indicate the degree of market impact, with the highest impact given a 5-star rating (*****) and low-impact news given two stars or even a single star.
- Some providers of the Economic Calendar will show a “Detail” box. Traders can click here to get more information about a particular news item as well as the market impact of higher-than-expected or lower-than-expected numbers.
- There is also a display of the actual, expected, previous and revised numbers for each news trade. This is where traders can get information as to the benchmarks for each figure and the actual figures of the news as they come in.
- Some providers will provide a historical graph or template that shows the performance of a particular news item over the last few months or years for comparative analysis.
Sources of the Economic News Calendar
The Economic Calendar can be obtained for free on the websites of almost every forex broker out there. There are some other third party providers as well. It is up to the trader to look up the websites of forex brokers, online review sites, forex online forums and third-party forex service providers for the Economic Calendar from the search engines. A forex news calendar provider may decide to add certain features that will make their versions of the calendar more attractive. This does not affect the dates and times of each news item.
How to Use the Economic Calendar
Now that you know what is contained in the economic news calendar, it is essential to understand how to use it properly. While this is not a strict rule on the usage of the Economic Calendar, this is a guide on how this tool can be used when trading the forex market.
- Rule 1: Always study the schedule on the calendar in a time block of one month, and do this for the month ahead of time. This is to enable you to take note of the high-impact news items and the dates and times that they are scheduled for release. This enables you plan your trades accordingly so you do not have open positions that can be unwound by the news release, thereby eroding your profits or deepening existing unrealized losses. You will be amazed at how many traders just ignore this simple fact, to their peril.
- Rule 2: Use world clock tools available on the search engines to know the time differential between your local time and the displayed time on the calendar so you can adjust your time settings accordingly. This will help you not to miss trading opportunities that a particular news release will bring.
- Rule 3: Use the historical data to study how a particular news item affects the markets. If you want to know how a currency pair will react to a news release, then the best answer would be to study its previous behavior using historical data and charts. This will help the trader avoid setting a profit target of 100 pips for a news release which will only move the market by about 45 pips. It will also help you know if a particular news release is unstable.
- Rule 4: Only trade the high-impact news releases, as these are the market moving events which create tradable volatility. Low impact news releases do not create enough volatility and therefore are not suitable for money-making trading activity.
- Rule 5: Use calendars that have auto-update tools which add the actual numbers to the calendar at the time of news release. This will help you closely monitor the trades.
In conclusion, we can see that the Economic Calendar is there to help all traders benefit from the market. They should be used correctly and fully so that traders can get the maximum benefits out of them. Sometimes, you may need to combine two or three calendars in order to get all that you want out of the calendar as some may have extra features and be deficient in others.
Trading is all about planning. Studying the economic calendar in advance will help you plan your trades so that you do not get caught out by some of the surprises that may occur during the news releases.
Also note that the market is always evolving. Some economic news releases which were of low impact a few years back have assumed market importance/high impact because of the emergence of those sectors as the drivers of the world economy. An example is the housing data in the US. Prior to 2006, some of the data on housing were not very strong, but as the subprime mortgage crisis was identified as the incriminating factor behind the global financial crisis, housing data out of the US has become a highly watched news release.
Finally, also watch out for the addition of new releases and removal of some archaic ones. Some of these may end up being of high impact e.g. the US JOLTS Job Openings report, which was born out the employment crisis in the US.