How to use economic calendars

As we already saw, there are several reasons that traders neglect economic indicators as one of their major tools for effective forex trading. One of the reasons is scheduling. With so many announcements every day, and so many different measurements to monitor, how do you keep track of what is going to be announced and when?

This is important because the time just previous to an announcement is often as profitable as the time immediately after. If you find out about an announcement when the information is available, it’s probably already too late.
Thankfully, it is becoming more common for brokers to include a list of major announcements that is updated daily. This is as simple to use as a calendar or a standard list schedule. Check with your broker to see if you have access to this information automatically. If not, much of this information is also available online. Simply search for forex economic indicators.

You may also want to sort these indicators by what is most important. The value of a currency does represent the status of the entire economy, but some indicators are certainly more influential than others. One good method is to copy the indicators from your source and paste the entire list into a document or spreadsheet. This allows you to quickly delete the less important events or highlight the ones that matter most. In another section of this series, we will discuss how to determine which indicators matter most.

Once you have access to this information, how do you use it? This is where many traders become confused. When an announcement approaches, the market will begin to price the new data in. In other words, the market will reach a consensus about what they expect the announcement to be and adjust accordingly. This process may proceed the announcement by a few hours or even a week. This is why a good announcement might provoke a sell off. The market is not only responding to the announcement itself, but to how closely the announcement matched expectations. The new data might be good, but if it is lower than expected, this is negative news.

One of the important implications of this insight is that you should watch your schedule for several days in advance. This is particularly important for the weekend and for major announcements. For instance, an entire week of trading on the Euro was recently controlled by the anticipated Friday announcement of a bail-out for Greece. That news continues to control currencies around the world. While this is not an economic indicator per se, it illustrated the power such announcements can have in the forex markets.

One other caution is very important: be aware of economic indicators that may affect your trades, even if they do not directly involve your currency pairs. For instance, any pair that includes USD will always be significantly influenced by the Euro. Simply stated, because of globalization, forex traders can never neglect the big picture. As a result, you should monitor economic information from around the globe, but especially in the largest economies, or any countries that have a significant economic tie to one of your currency pairs. This is especially true if you are working with a currency in a nation that is heavily dependent on exports or other international relationships.

So if you’re determined to watch these announcements, how do you determine which ones matter most? That is the subject of the next article.