An economic calendar is used by investors to plan trades. It features scheduled dates of significant events that can impact security markets and prices. Economic calendars are usually available for free on a wide range of databases. Many investors across the globe use them for portfolio rebalancing and stay on alert for indicators and chart patterns caused by events in the market.
Most of the events listed in the Economic calendar include reports of recent economic events and forecasts of future financial events. Economic calendars are important as they provide investors with information on important events, dates, and releases that can affect the market situation.
The financial sector is news-driven, and access to news on financial events can help drive price growth.
How Do You Read the Economic Calendar?
Economic calendars are found on economic and financial websites and can be accessed for free. Worth noting is the calendars may fluctuate across the different sources, as the content is usually aligned with what the clients of the website are keen on.
As such, the calendars mostly end up being customizable trading instruments. If read properly, the economic calendar can be a useful tool for monitoring important economic events, which can inform your trading plans, predictions, and strategies.
Here are the key things to look for in an Economic Calendar:
Events have a column with a clear highlight of the title “Event.” The names of the events are often indicated with flags attached to show the relevance of the event in terms of the country. Some of the common events that will be highlighted in an economic calendar include new home starts, news of scheduled interest rates changes, market-specific economic sentiment surveys, and even weekly or monthly jobless claims.
2. Detailed Reports
Once you identify an event relevant to your market on the calendar, you should get a detailed report for meaningful insights. When you click to open an event like weekly jobless claims, you can get details on the number of people who have filed for unemployment benefits within a given period. This way, you will receive all the relevant information to plan trades.
The economic calendar also highlights the time and date of the release of information on events and economic reports. Releases in the different countries comprise indicators and data points that affect the stocks, forex, and commodities markets.
4. Event Importance
Often highlighted as “Impact,” the importance of the events is also highlighted in the economic calendar. The impact of the releases can be high, medium, or low. The event’s importance shows the power or level of impact an event will have on the market.
For instance, low-impact events are not strong market movers, whereas high-impact events have the power to cause sudden fluctuations in the market.
5. Past Result, Forecast, and Actual Result
The calendar features the results of a previous release, forecasts of the expected results for a current release, and the actual results after the release. Traders can use this section of the calendar for technical analysis to evaluate the strength and validity of forecasts.
Economic calendars can be filtered to show the events you are keen on. You can also adjust the time zone to suit your needs. You can choose to have the events displayed in terms of the impact, relevance and currency.
Using The Economic Calendar to Reduce Risk
There are different risks involved with every trade you make in the stocks market. Smart traders have different risk management techniques to lower the risk involved with every trade they make. Checking the economic calendar every day is one of the practical ways to avert risk.
Traders should stay alert on the listed release time and dates. They can also write down the moves they should make with every release, like exchanging stock or making a stop loss request. Leveraging the economic calendar is essential, especially for traders that put the monetary market. Using it, they can confront or avoid disappointments presented by radical changes caused by high-impact releases.
The economic calendar is certainly handy for planning for risk aversion.
Types Of Indicators to Look Out for In An Economic Calendar
The key data points in economic calendars are the lagging indicators and leading indicators. The following indicators affect the economic cycle.
1. Lagging Indicators
Lagging indicators are only observable after an event. They are the variables that change their movement and direction after a change in the economic cycle. Lagging indicators are used to confirm trends and gauge patterns in the economy. Traders use the indicators to show traders’ changes in trends in terms of the origin of prices. This can help the traders predict where the prices may be next.
Lagging indicators are used by businesses, investors, and government agencies to gauge the trends and patterns in the overall economy. Economic lagging indicators include corporate earnings, balance of trade, interest rates, gross domestic product,
unemployment rate and consumer price index.
As aforementioned, the shift in the variables takes place when there has already been a shift in the economy.
2. Leading Indicators
These economic indicators are used to forecast trends and events in the economy. Lagging indicators
show a change in movement and direction before a change in the state of the economy. While not always accurate, leading indicators are used by government entities, investors, and businesses to plan their operations and strategies.
Leading economic indicators include the stock market, yield curve, jobless claims, housing starts, corporate capital expenditures, purchasing managers index, and retail sales.
Economic calendars are valuable to regulators and participants in the financial markets. Investors use it for technical analysis by observing events linked to indicators to make trade plans and rebalancing their portfolios.
For instance, if events featuring leading indicators show some signs of contraction, investors may decide to reallocate their investment to low-risk securities. On the other hand, if leading indicators show signs of expansion, investors can plan to reallocate their assets to high-risk securities. Markets are news-driven, and economic calendars serve market participants with the information they need to plan, develop trading strategies, and avoid risk.