How to Use Economic Calendar? | Trading and Investing Tips

By Advisorymandi
6-September-2018 6:00:13 AM
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Economic Calendar (also called Forex Calendar) is a calendar used by investors and traders to monitor ongoing and forthcoming major economic events and indicators like the gross domestic product (GDP), CPI data, OPEC report, Interest rate decisions, and much more. An economic calendar displays all the information in the form of charts showing the days, weeks, and months of a particular year. A live economic calendar can give you the info on the crucial economic indicators which have a high probability of impacting the financial markets.

 

Importance of Economic Calendar to Investors & Traders

Even though we were discussing the importance of the economic calendar earlier but to investors/traders, economic calendar plays a crucial role in collecting all the domestic and global financial news of ongoing and forthcoming events and announcements which placed in the chronological order of importance and influence level on the market. Investors follow the economic calendar and give time to research and anticipate the direction of the market.

Many investors/traders check the economic calendar every day in the morning, before start trading, and track the dates of major data releases.

To better understand this, let’s take a scenario.

Let’s suppose you are trading a stock in a stock market with a very tight bid/ask spread and outstanding volatility at each price level to absorb your orders, typically stop-loss order will get you out of the trade at the expected price. But, when a high impact data release comes out, though, things can drastically change. Things may not go as you planned and you may face a very high chance of slippage. The expected loss could increase multiple times.

But, if somebody keeps track of major economic and financial events and announcements, he/she can avoid this unpredictability. With this, one can easily find out what data will be revealed or how many orders will come into the market upon its release.

Many professional traders take advantage of it and close out their forex, or future positions a couple of minutes before the high impact data are released. So, whether you trade forex, futures or stocks, the economic calendar is for you.

 

Indicators Used with the Economic Calendar

An economic calendar contains a list of many economic indicators which convey certain information about economic activities. Investors use this information to analyze the economic performance as well as predict the future direction of the market. For example, each quarter India releases data on the gross domestic product (GDP) which allows investors and traders to analyze the performance of the Indian economy over the previous three-month period and make comparisons against the last one.

Some of the crucial economic indicators are:

Consumer Price Index (CPI)

CPI is one of the crucial economic indicators which used to measure inflation. It is a statistic to measure the price changes in a basket of goods and services. India which has been using WPI to measure inflation from awhile has adopted CPI to measure inflation rate.

Producer Price Index (PPI)

It is a weighted index which measures the price changes on the producer level, excluding imports. By calculating the PPI, one can be familiar with high-interest rates, corporate profits, consumer spending, and most importantly, the movement in the stock market.

Gross Domestic Product (GDP)

Anybody who comes from financial or economic background must know about GDP. It is like the scorecard of the country’s economic health. It represents the total market value of all goods and services within a period of time. It is one of the data-driven indicators including the PPI which tells a lot about a country’s economic condition.

Interest rate decisions

Interest rate decisions or monetary policies refer to as a process by which central banks (like Reserve Bank of India) control the money supply. Every country has a monetary authority which decides and takes decisions regarding the interest rates in the country to promote stability and economic growth.

Apart from this, there are other economic indicators including unemployment data, industrial production, core retail sales, building permits and much more. These are equally important economic indicators which one can track through a live economic indicator.

 

How to Use the Economic Calendar?

Trading and investing in the financial market require technical and analytical skills. Generally, the technical analysis helps in finding the reason of where the price is moving while the fundamental analysis helps in finding why the price is moving. This reason could be an important economic event, the newly launched report, or a huge announcement.

Good thing is, the economic calendar can help in warn you in advance when the news will be released. This can give you the opportunity to prepare yourself and adjust your trade accordingly.

To get access to the live economic calendar, one can simply go online. The economic calendar is available in many stock market platforms. Every investor must know how to interpret the economic calendar.

If you don’t know how to use an economic calendar then don’t worry! We can help you. In fact, that’s why we are here today to explain all of you in this.

Day & Date

If take a look at the image below, you will notice, provisions for yesterday, today, and for the whole week in general. So, if you need to look at the trend or previous data for comparison, then you can just simply select the period. Even, if it is for the whole week. All you have to do is select the right period and the calendar will display it for you.

 

 

Time Zone Settings

In the top right corner, there is a time zone setting which you must select according to your timezone settings. You can also choose as per your trading charts or trading platform.

Now, let’s come to the below columns where the first extreme left column represents the updated time of the event launch, which will automatically update on its own.

 

 

Currency

In the currency column, the information on the country’s origin and currency of the data release is mentioned. It also represents the economy of that country as well. This helps in knowing which currency or currencies are likely to be affected when the news is released. The currency can be identified by the color of the flag and the currency always put beside it.

If you are interested in some particular currency then you can just click on that to see the news in details.

 

 

Impact

As we discussed earlier, the different news has a different impact on the country’s economy, its forex market as well as its currency value. It can be differentiated by its level of volatility. Here, the volatility level is represented by three default colors – red, yellow, and orange.

 

 

Yellow – indicates that the impact of volatility is very mild and it is not likely to have a huge impact.

Orange – indicates that the news might change in the future, depending on the actual values released when compared with the forecasted value.

Red – indicates that the market observers expect to have the particular data to move the forex market.

Actual/Forecast/Previous

All economic calendars have provisions –

  • Actual Number
  • Forecasted Number
  • Previous Number

“Previous” indicates the previous data from the last release. It could be released last month or last week. For instance, if the news released monthly then the column will show the last month’s data. The “Forecast” implies the number forecasted by experts on the outcome. And “Actual” is the data displayed when the actual data released.

 

 

 

Final Thoughts: – How to Trade Using the Economic Calendar?

We hope this information helped you in a way you expected it to be and believe you now have understood how to use the economic calendar. The news and information in the economic calendar known in advanced and repeated over time. When the news is released, there are only three different possibilities – the news will be good, bad or the same.

If the actual coincides with the predicted value then there will be no movement at all. But, if the actual data is better than the forecasted value then there will be a sharp movement to the upside and the reaction will depend upon the difference.

In such a scenario, investors usually take a buy position order otherwise; sell position, in case news, is less than expected. This is why the forex traders use the economic calendar to compare two economies and make decisions based on the analysis. After all, the forex market trading is all about buying and selling a currency pair. You can check the economic calendar couple of times a day to track the currency market trends and make informed decisions on time.

If you have any query or would like to add something up then please leave a comment in the comment section below.

 

Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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Barrie
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Barrie
1 year 4 days ago

It was a great tip, I really appreciate it, I will try it.

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