Reviewing an economic calendar is an essential part of your daily routine as a good forex trader, and should always be the very first thing you do before deciding on trade set-ups and trading strategies for your trading day. Being aware of the timing of price sensitive news before it happens enables you to reduce your risk.
Movements in the price of fx pairs are often greatly influenced by announcements relating to the economies of the particular currencies. So for example if you are trading the Australian dollar (AUD) just ahead of an interest rate announcement from the Reserve Bank of Australia, you can expect some volatility shortly after the announcement, particular if the announcement is different to what most analysts were expecting.
Be aware that the period immediately ahead of the announcement can often see a lack of direction as the announcement is awaited, although it is also not uncommon for the price to be volatile ahead of the announcement.
Due to the importance of the US dollar (USD), announcements specific to the US economy often have an impact across all currencies.
Forex Economic Calendars
Many well known financial websites provide economic calendars, updated with the latest economic figures as soon they are announced - all for FREE.
The best forex calendars colour code the announcements, indicating how much impact each announcement is likely to have on the particular currencies. Economic announcements most likely to drive the markets are coded RED. Those likely to have a low impact are coded yellow.
Good forex calendars also show the figure which analysts expect to be announced, and provide a useful explanation of what the figure means and who publishes it.
Particular announcements to watch out for which are guaranteed to have an impact are US non farm payrolls, GDP (gross domestic product), interest rates, and also speeches being made by the US Treasury Secretary and the US Chairman of the Federal Reserve.
Keeping a careful watch on an economic calendar ensures that you as a forex trader can immediately see:
- which announcements are due in the coming hours,
- which currencies the announcements are likely to influence,
- how much influence they are likely to have.
By knowing the timing of key announcements related to particular currencies you may be thinking of trading you can choose to stay out of that particular currency until the announcement has passed. This may be particularly helpful if you are a day trader trading with a tight stop loss.
Just imagine how annoyed you would be if you looked back on the charts at a Long trade you were in yesterday, which spiked down 20 pips and hit your stop loss (taking you out of the trade with a loss) just after an announcement, only to then recover and surge up a further 150 pips into profit......without you.
Some forex traders however will specifically choose to be IN a currency as an announcement breaks, hoping to benefit from a sharp price movement if they predict the announcement correctly.
The information provided in an economic calendar is more specific and more relevant to your trading decisions than most of the commentary you will hear on television, or read in editorials - much of which is opinion, speculation and in most cases after the event has happened.
By comparison, as a forex trader what you want is accurate data, specific to your trades, at exactly the time when it is most relevant to your trading.
By knowing in advance the timing of announcements likely to influence currency prices, the forex economic calendar enables you as a forex trader to manage risk and should be one of your key trading tools. It should be noted however that no economic calendar will ever be able to warn a trader of unexpected events, which can often have an even bigger impact on the markets.
The [http://www.profitable-fx-trading.com] website provides immediate free access to some excellent economic calendars which you can use right away, along with many other free tools, free training videos, strategies and useful contacts to make your forex trading as profitable as possible.
Article Source: http://EzineArticles.com/expert/Thomas_Webster/420105
10:56:00 PM
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