The AvaTrade global Economic Calendar comprises routine financial events which affect the financial markets. Skilled UK traders anticipate these events and plan their trades in accordance. Each of these events can create changes in different instruments’ value, usually on a smaller scale.
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What is an Economic Event
The events on the AvaTrade economic calendar are pre-scheduled, and include statements made by countries and other leading players in the financial arena such as central banks, the International Monetary Fund (IMF) and others. A declaration stating the monthly unemployment rate of a country, for example, can cause fluctuations in the local currency value. The preference of central banks and other major players is towards a calm and stable market, and in this way most instruments usually act. However, sometimes events can create major waves massively impacting the financial markets.
The Importance of an Economic Calendar
When using the economic calendar, traders gain a better understanding of market changes, the reasons why they change, a prediction of by how much the market will change, as well as a look at past events that have changed the markets and by what percentages.
Why use an economic calendar
- Traders can track occurrences of market moving events and measure their effects
- Anticipating major market events and act on their performances
- Stay abreast of crucial market movements that can affect your open trades
- Follow key economic and non-economic indicators
- Events that influence the movements of a particular currency can be closely monitored
Fundamental analysis for Economic Calendar
Experienced traders know how to plan and perform their trades according to the calendar both before and following the events. Using the economic calendar is part of fundamental analysis, trying to predict which way the market will go in order to make informed and wise trades. Before an event from the calendar takes place, the trader will study the general state of the economy, review similar past events and more. Based on those factors and others, he will try to speculate the effects the event will have on various instruments. This is the basis of fundamental analysis – predicting the market trends based the current finance situation, past patterns and volumes etc.
Some traders, usually more experienced ones, will open positions before the financial event. If such a trader speculates that the announcement will bring to a rise of the instrument’s value, he will open a buying position prior to it, in order to sell it once it will go up and take profit. Other traders, however, will linger with their trades until after the announcement as part of their risk management.
Economic Calendar Risks
One thing all traders need to be aware of is the risks presented by the various economic calendar events. These are most important to swing traders, day traders, and scalpers, but any trader or investor can benefit by learning how to prepare themselves for upcoming data releases. The more important events such as labour releases and GDP results will come with volatility. This is usual and expected by experienced market participants. This volatility is also present no matter what the results of the actual release, whether it is in-line with expectations, better than expected, or worse than expected, volatility can always be expected.
There’s a good reason for this behaviour. Experienced traders already know to expect volatility around the time of important economic releases. Because of this many will choose to cancel any pending orders and just sit on the sidelines in advance of the economic release. Because there are so few pending orders the liquidity in the market dries up, leaving few orders to soak up the huge influx of buy and/or sell orders following the data release. This can often cause price to whipsaw, or move violently first in one direction, and then back in the other until enough liquidity is restored to stabilize trading conditions.
Important Economic Events
The economic calendar gives traders a place to see all the important economic data due to be released in the coming days, weeks, and months. It tells both the date and the time of the release, which allows traders to make very detailed preparations ahead of any economic data release. Any good economic calendar will also provide the consensus estimates for the results of the release, letting you know what analysts and the markets expect from the release. Some economic indicators are far more important than others in terms of market movements. One example of this is the US non-farm payrolls data. This report comes out on the first Friday each month and gives a snapshot of the labour situation in the US. It is closely watched by traders in every market, and it often leads to significant market moves.
The Producer Price Index (PPI) and Consumer Price Index (CPI) each measure inflation in Europe and the US and from other countries. This data can influence monetary policy decisions and changing interest rates. The Growth Domestic Product (GDP) data of nations reflects economic growth, and is another key economic data release that can drive substantial market changes. Trading on economic data releases also applies to other markets such as commodities. For example, crude oil traders will need to watch the weekly Energy Information Administration (EIA) releases that detail crude production and storage in the US Agricultural traders will want to monitor the monthly release of the USDA Grains report, which can cause significant movement in the soft commodity markets.
There will almost always be volatility around an important data release, but it becomes far more pronounced when the data is a surprise to the markets. This isn’t common, but when it occurs it can cause strong moves in either direction as traders react to the new data. The moves are often a breakout in the direction of the trend, but can also be reversals that create new trends.
Trading the Economic Calendar
Because you can be pretty sure that important economic events will create volatility you are also able to position yourself to potentially benefit from that volatility. Following an economic calendar will tell you exactly when to expect the volatility, and knowing when something will occur in markets ahead of time is a rare and valuable gift. Keep your eye firmly fixed on the economic calendar each day to remain fully prepared.
How to Trade Economic Events
There are a number of strategies that can be used to take advantage of the market volatility caused by economic data releases. Using a purely technical strategy is favoured by some traders, while others combine technical analysis with their own fundamental analysis of the data. No matter which method you choose, having a risk management plan is one key to success. Trading around economic releases is already quite risky due to the increased volatility and protecting your capital is critical. One way to incorporate risk management is to know how volatile a market typically is at an important data release. For example, you can look at historical data to find out the typical range in the GBP/USD when non-farm payrolls are released to determine a proper stop loss level and avoid getting knocked out of a position too soon.
The more conservative approach is to wait until the data has been released before trading. You can even wait until 15-30 minutes after the data release to determine market sentiment and trend. You might miss part of the move, but you’ll also avoid those times when the initial move after the release is a fake out. With the broad variety of assets offered at AvaTrade there are many different markets you can take advantage of in response to important economic calendar events.
On the first Friday of every month, the U.S. Bureau of Labor Statistics releases the overall number of employees in the US, excluding some fields such as government workers, agriculture and non-profits. This report is called the ‘Non-Farm Payroll’. It reflects approximately 80% of the US working force. Financial news desks and companies post forecasts relating to this announcement. This triggers attention by traders, anticipating the announcement and trying to predict and plan trades. Once announced, traders compare the report to their speculations before the release. If the rate is better than forecasted relevant markets will experience a rise. A higher unemployed number, however, will cause most markets to decline. The non-farm payroll can affect the many other fields such as costumer consumption rate, stocks and more. This is why it is considered an event with major financial influence.
It is important to bear in mind that any trends that occur after the event is also influenced by many other factors. There is no certainty the market will react the exact same way every time, since there are many other elements that affect it.
AvaTrade’s Economic Calendar
It is would be wise for all traders, regardless of the instrument, to follow up closely the Economic Calendar. As seen in the example given, any event might affect several instruments. Trading side by side the calendar will help you understand the market and stay on top of it. Accompanied by time and practice, the calendar can improve your fundamental analysis and predictions based on upcoming financial events.
Economic Calendar main FAQs
Why is an economic calendar an important tool?
There are many economic data points that are released from countries all around the world. These economic reports have an impact on financial markets, from currencies to commodities to stocks and bonds. Without a good economic calendar, one that is complete with all the important economic releases, any trader could get blindsided by an unanticipated market move. For example, manufacturing data is often important for the stock market, and for certain commodities like crude oil. A positive manufacturing data report can lift markets, while a poor report can cause sharp selloffs. If you aren’t aware of upcoming reports like this you could easily be on the wrong side of a trade.
Where can I find the best economic calendar?
We may be a bit biased, but we think that the economic calendar provided by AvaTrade is the best you can find. It has all the important economic releases you’ll need when trading the markets. You’ll be able to quickly see when various countries are releasing employment data, GDP, inflation data, and many of the other economic indicators that can drive markets higher or lower. Combine our economic calendar with our education centre and you’ll be on the way to having all the tools you need to perform accurate and useful fundamental analysis of your favourite markets.
How do I use an economic calendar?
If you want to properly analyse any market it is critical that you have all the relevant information, and that you know how to use it. The economic calendar will deliver all the relevant information about when you can expect certain market moving data to be released. Once you’re aware of the release of this data you can go find out more about how the data moves the markets, and what to expect from the current data release. Based on that information you can develop a hypothesis on which assets you should be buying, and which you should be selling. If your analysis is correct you can expect your trading account to continue growing.