How to Use an Economic Calendar to Enhance Your Trading

If you are trading any market, be it stocks or foreign exchange, you need an economic calendar. This is a schedule of dates of important news releases or events in the United States or other advanced countries that can influence the movement of forex pairs and the overall financial market. There are many places where you can keep a track of important dates, such as Bloomberg, MarketWatch, and Fortrade.

How to Read an Economic Calendar

With a basic understanding of the worldwide financial markets, you can quickly scan through an economic calendar. But what exactly would you be looking for? So, for example, if you are waiting for the Federal Reserve's next move on interest rates, you would look for the next Federal Open Market Committee (FOMC) policy meeting. Or, if you want to know the next annual inflation reading in the United Kingdom, you would look for the next time the Office of National Statistics (ONS) releases the consumer price index (CPI).

Overall, any significant economic data or related events will be viewed on these calendars, such as those listed on our own economic calendar:



Clicking on one of the events will allow you to see its previous history:



As well as volatility:



How Can It Help You Trade Better?

By using an economic calendar, you might be able to improve your trading skills in several different ways.

Focusing on Impactful Events

Economic calendars might help you concentrate on impactful events, such as the personal consumption expenditure (PCE) price index, a much-anticipated jobs report, or consumer inflation expectations. Of course, knowing which ones to monitor will require one of two things:

1. Understanding what the market is paying attention to
2. Researching what experts are monitoring

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Developing Good Strategies

Economic calendars might allow you to manufacture a good event strategy. In other words, if you have embarked upon day or swing trading, you need to keep track of significant economic data or events that might indicate price movements. This can also be beneficial since it will enable any volatility expectations, which can lead to profits (or losses).

Indeed, utilizing an economic calendar can enhance various trading strategies, such as scalping and pre-data trading.

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Scalping

Scalping is a trading strategy that specializes in profiting off of small price changes. Depending on the type of data or event and how much it defied expectations, there could be immense volumes in the financial markets, which is beneficial for scalping.

Pre-data Trading

Pre-data trading is when you make moves before the scheduled time. So, for example, the markets might be waiting on the U.S. central bank to announce a 25-basis-point hike to the benchmark federal funds rate. However, you think the Fed will either pause or execute a half-point increase. Either way, you are front-running the market and could generate potential profits if the price moves in your favor.

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An Example

An economic calendar could perhaps give you a lead over other investors. Let's say that there is a crucial storage report for crude oil or natural gas from the U.S. Energy Information Administration (EIA) on Thursday, but the market is tanking or soaring two days before. Since you anticipate a significant build or withdrawal in domestic supplies, you tailor a strategy with this information. When the information is dropped, you can see that the numbers came in better or worse than what experts anticipated.

Put simply, you're looking ahead while others still focus on the current session.

4 Additional Tips

Here are four common trading mistakes to watch out for when relying on an economic calendar:

1. Misunderstanding the Importance

Novice investors might think a certain piece of data will be far more important than it is, especially as it relates to the instrument you have chosen. It is better to examine what other investors are saying before thinking that the Conference Board's Leading Economic Index (LEI) will result in a selloff.

2. Missing Events Due to Time Zones

Unfortunately, time zones can lead to you missing the data or an event's conclusion. The simple solution is to modify your calendar on your time.

3. Having No Strategy

So, you are waiting for Tesla Motors' next corporate earnings report. Investors expect terrible numbers, but you have been tracking Elon Musk's Twitter feed and think revenues, sales, and earnings per share (EPS) will top market estimates. For whatever reason, you did not use this knowledge to trade the price of Tesla stocks, potentially leaving some potential profit on the table.

4. Failing to Learn

A common mistake is not learning from these dates and how they correlate to the broader market movement. This could be a possibility to identify chart patterns, think about how the data affected the market, and determine how large or small the trading volumes were.

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Can Using the Calendar Improve Your Trading Skills?

In a simple answer: Yes. But it will depend on a laundry list of factors: understanding how critical the data will be, knowing how much the event will influence the market, and realizing how much it could help or hurt any of your positions. Overall, an economic calendar offers a myriad of benefits for any serious trader. Of course, it is more beneficial to active short-term investors than to passive long-term traders.