Consider if you had to drive on a busy highway, with your eyes closed. It would be impossible to do, and it would be highly dangerous. Trading the Forex market with no foresight is exactly like driving blind. When big news events hit the wire, the market will swerve and change directions in a heartbeat.
So how do you know what’s coming next? With a simple, but extremely powerful tool: the forex economic calendar. We are going to show you, in a very simple way, this calendar, how to use it, and why it is the secret weapon of every successful trader.
What is a Forex Economic Calendar?
Let’s begin with a straightforward definition: A forex economic calendar is a comprehensive list of all relevant financial news and data releases that are occurring throughout the world. Think of it as a TV guide for the market so you know precisely what will happen, when it will happen, and how important it might be.
A solid forex economic calendar will show you:
- The time and date of the news release;
- The currency that will be most affected;
- The “importance” of the event, usually designated by low, medium and high impact; and
- The “numbers” – so you can see the “previous” number, the “forecast” (what experts think), and then the “actual number” that will be released at that time.
This is the basis for forex fundamental analysis.
How to Read the Calendar in 3 Simple Steps
You don’t need to be an economist to understand this tool. Learning how to read forex news off a calendar is easy.
Step 1: Check It Every Morning. Make sure you make it a habit to check the forex economic calendar in the morning each day before starting your trading day. Look for what derivative events will be scheduled.
Step 2: Filter for What Matters. An economic calendar can look busy. The best thing to do is filter it down. You can filter for:
- High-Impact Events Only, which are the ones that usually have the largest market moves.
- The Currencies You Are Trading. If you are only trading EUR/USD, you will only need to know about news for the Euro (EUR) and the US Dollar (USD).
Step 3: Compare “Actual” vs. “Forecast.” This part is the most important on the calendar. When the news is released, the “Actual” number will populate.
- When the Economic “Actual” number is greater than the forecast, the currency will usually go up.
- When the Economic “Actual” number is less than the forecast, the currency will usually go down.
This is the basic logic you would have for forex trading during news.
The Big Economic Events Forex Traders Watch
Some of the economic events traders watch are way bigger than others. Here are some superstars to always look for when mapping out your calendar:
- Interest Rate Decisions: The #1 market mover. When a central bank alters its interest rates, it can produce very big waves.
- Non-Farm Payrolls (NFP): A massive monthly employment report for the United States. It always produces action.
- Inflation (CPI): This report tells us how rapidly prices are rising, and it is very important for the central banks to determine their next steps.
- GDP Reports: It tells how healthy the economy is of a country.
Part of using a forex economic calendar is knowing what events happen when.
The Right Broker Gives You an Edge
A good forex economic calendar is an essential tool. The best forex brokers understand this fact and often have a good calendar built into their platforms.
- If you are a newbie just learning how to read forex news and trade forex, a simple and clear platform from brokers like Capitalix and SmartSTP connect easily to it.
- Forex trading around news can be very fast. It is wise to have a reliable platform that will not crash in the middle of a trade, brokers like FX Road and Trade EU Global are known for good technology.
- More serious traders, who do deep forex fundamental analysis, need professional tools. The platforms from CapPlace and the ECN broker FirstECN provide all the advanced features they will want and use.
- The best brokers are always coming up with better tools. Brokers like SuxxessFx, Tradgrip and Algobi have built, or partnered up with, smart tools and have integrated a clever news feed that can keep you above water in timing your response.
A Simple Strategy for Trading the News
Engaging in trading during a high-impact news release can be extremely chaotic and risky. For first-time traders, usually makes sense to take a simple but smart approach.
Strategy 1: Don’t Trade. This might seem absurd, but the safest thing a new trader can do is to just close their trades (if they are trading), and not trade for at least 15 minutes before and after a news event.
Strategy 2: Trade the Aftermath. If you are more of an advanced trader, you can simply wait for the initial wild spike to end before taking any trades. Once things calm down a trend will soon form. At this point you can look for an opportunity to trade in the new direction. This is a much more relaxed way to be trading forex during news.
Conclusion
The forex economic calendar serves as a guide for a trader during an entire week’s worth of trading. It indicates when the trading environment may become rough and when it may provide a smoother flow of action.
It is one of the simplest yet one of the most powerful tools in the fundamental analysis of forex. You should make it a habit to check it every single day. By knowing what is coming down the pipeline, you can protect yourself from an unexpected outcome yet maximize the opportunity when there is no market disturbance. Using a forex economic calendar is a major step toward stepping up your trading to the professional level.
FAQs
- What is a forex economic calendar?
It is a schedule that lists all the important upcoming economic events forex traders care about. It shows the time, the currency affected, and the importance of the news.
- Is using an economic calendar part of technical or fundamental analysis?
It is the main tool used for forex fundamental analysis. It helps you understand the economic reasons why a currency’s price might move.
- What does “high-impact” news mean?
These are the most important news releases, like interest rate decisions or NFP. They have the potential to cause the biggest and fastest price movements.
- How do I know if the news is “good” or “bad”?
You compare the “Actual” number that is released to the “Forecast” number. If the actual number is better than the forecast, it’s usually good for the currency, and vice-versa. This is how to read forex news.
- Is it safe for beginners to trade during the news?
It is generally not recommended. The market can be extremely volatile and unpredictable during a major news release. A safer strategy is to wait until after the news is released.