What is an economic calendar and why is it important to traders? Economic calendar or the calendars that provide a global overview of economic activity around the world. It shows which countries are growing rich or developing slowly, which is in recession, etc. Economic calendar helps traders to make informed decisions on currency trading. In other words it helps one stay prepared when making foreign exchange transactions.
An economic calendar is the most reliable companion, a quick tab on your computer, whenever you don’t care much about international macroeconomics. However it is a useful tool if you really want to trade Forex via fundamental analysis, because it helps you check how economies all over the world are performing according to their own macroeconomic data (like employment, gross domestic product, etc.) against their past macroeconomic indicators. For example, when looking at the data for last 5 years, you can immediately tell if the currency of a particular country has entered an uptrend or has experienced a downtrend.
The economic calendar is not only important for forex trading but also important for the stock market. Stock prices move with important economic events. And hence it is important for traders to track the evolution of these events, because these price movements give them a clue about the state of the economy and stock markets.
Traders need to be very precise about market expectations and its implications on exchange rates and FX. Economic calendar helps them make sense out of all these complexities. The most striking feature is its use of MACD indicator which shows the direction of movement in price. This indicator uses moving averages to calculate market expectations from key economic events. It shows a clear picture of the movement of forex pairs in terms of the expected direction and time period.
There are many advantages of using this tool like charting, identification of support and resistance levels, identification of trends etc. In order to understand the implications of an economic calendar, one must have a proper idea of what exactly a currency pair’s previous value was. A trader can identify whether the currency pair is showing a downtrend or an uptrend, whether the currencies are moving in opposite directions. The better your charting skills are, the better your chances of making a profit.
But the biggest advantage of using this tool is that it gives the traders a chance to perform technical analysis without having to wait for any market reaction. If you trade regularly and follow the news releases of major central banks, you will see a pattern of change. Economic calendar gives you a chance to participate in the analysis process without any extra effort. You can take the help of Forex Trading Machine to perform technical analysis of the exchange rate.
Another benefit of using economic calendar is that it gives more time for evaluation of the entry and exit points. For instance, if you trade regularly and find that there is high volatility in the rates, then you may want to wait for the high, volatile points in the economic calendar so that you can take advantage of the entry and exit points properly. However, if you trade less regularly, you may not get time to watch the events closely enough. If the event is very high impact, then you may not be able to participate actively in the event. This makes such type of trading less active and profitable.
Sometimes the economic calendar can help us out in predicting the next day’s trading results. This happens when we make use of historical data and base our estimates on those data. For example, if the previous day’s economic events show a downtrend, we can base our estimates on the same. If the event is showing a high volatility, we can estimate the chances of a reversal based on our past performance. Therefore, we can use the economic calendar to better predict the price movements in the market the next day. With the information provided by the economic calendar, we can do trading decisions faster.