Using the Forex Calendar to Take Advantage of Breaking Economic Developments
If you are using a forex calendar to trade currencies, one of the most important skills you need to develop is how to take advantage of breaking economic news to make trading decisions. Since there are at least seven important economic indicators on a daily basis released from the eight countries whose currencies are the most traded in the markets, which include the US, the UK, Japan, the Euro Zone, Switzerland, Canada and Australia/New Zealand, and which form some seventeen currency pairs, including EUR/USD, USD/JPY and AUD/USD.
The most important economic indicator announcements that you can find on the forex calendar include the Gross Domestic Product, Consumer Price Index (CPI)/Inflation, Interest Rate decisions, Balance of Trade, Business Sentiment and Consumer Confidence Surveys, Unemployment and Industrial Production. It is also important to know the approximate times that economic data is released by the various countries so you can anticipate them and time your trading choices accordingly. For example, the US releases its economic data between 8:30-10:00 Eastern Standard Time (EST), the UK from 2:00 to 4:00 EST, Japan from 18:50 to 23:30 EST and Canada 7:00 to 8:30 EST.
One way that you can use the forex calendar to make currency decisions is to integrate economic data on your forex charts. Various charting programs allow you to add indicators, which appear next to the relevant price data. This allows you to clearly see the relationship between economic developments and price data so that you can find signals to enter and exit trades.
For example, the period immediately before the release of a big piece of economic data usually represents a period of consolidation, when market participants are waiting for the news. Immediately after the release of the news however, you can expect currency prices to break out of the narrow range they were trading in, allowing you to make a big trade.
One of the most important things to consider when using the economic indicators in a forex calendar to make your trading decisions is that they do not last very long and thus you have to time your entry very carefully in order to avoid being hit by volatility. Depending on the economic news, the effect could still be felt in the markets as long as four days after release, although in general the major effects are felt on the first and second days.
One way to avoid volatility is to trade in SPOT (Single Payment Options Trading) options. These options pay out when a certain price level is hit and the payout is already predetermined. SPOT options include One-Touch, Double One-Touch and Double No-Touch options based on the number of barrier levels they have and when they pay off. The Double No-Touch, for example, only pays off when the two barrier levels set in the option are not breached.
Because of the challenges of trading using the forex calendar it is very important that you take the time to study the various economic indicators involved and how they could affect the currency markets. It is also vital that you take into account market sentiment, or how market players perceive the indicator, since this can similarly affect price movements.
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