Every day trader knows the importance of an economic calendar. You might need to give it a read once a day for 5-10 minutes, but this time is crucial in determining the success of your trading activity. For a day trader, particularly, an economic calendar serves as the portal that gives users details of different companies, the latest announcement that can affect its stock price, the volatility of each share, and other details.
It’s a part of fundamental analysis, which when done right, can significantly reduce the risk of making bad decisions. Using an economy calendar from a reputable site is, therefore, essential for all day traders (no matter how experienced or inexperienced).
What Exactly is an Economic Calendar?
All data releases and the latest news in the financial market are displayed through an economic calendar. This includes interest rates, new GDP, inflation, and employment reports. Understanding these factors will help you determine the perfect time to invest in your desired company.
Some economic calendars also show the predicted volatility rate to help beginners make informed decisions about investment. There is a considerable amount of data released every month. This data can be tracked and assessed on economic calendars.
Each event is ranked or colored in yellow, green, orange, and red to show the effect of the event on the company’s shares. A red color, for example, indicates a drastic change that raises the volatility of the company’s stock. While these are marked and the grading criteria differ from one economic calendar to another, the details provided are mostly the same in each.
Track Your Risk Every Day
Checking economic calendars daily is a must for day traders. You might think buying and selling shares on the same day carries less risk, but a deal carrying 1% or less risk can quickly jump to 5% and higher if there’s a drastic change. Since the market is highly unpredictable, most forex and stock traders prefer closing their sales a few minutes before the high-impact data is released. Things are different for options buyers. You can wait for the scheduled data release, as your loss is capped at the premium value. You can’t lose more than that.
Notice the Effect of a Macro-Release on Your Trade
Beginners might find it difficult to understand economic calendars and make appropriate decisions when buying and selling currencies or stocks. The best you can do is invest in a few currency pairs or shares initially and watch their reaction to the big news.
Knowing how your trade reacted to these drastic changes gives you a glimpse of how it’s likely to be affected in the future. That said, making decisions based on historical market movement patterns is not advisable. Just because a certain company reacted in a certain way during the data release doesn’t mean it will react the same way in the future. It’s best to use stop-loss, take-profit, and other tools to minimize your risk of losing.
Trade Wisely
Your trading strategy before, during, and post the major releases will determine your profit. Usually, experienced traders trade right before or after the data release is scheduled to maximize their profits. That may not work for beginners.
Experienced traders conduct fundamental and technical analyses, and use their experience in this industry, to trade during these times. While it carries a significant risk, this strategy can prove profitable for traders. Closing your sales a few minutes before the major release is an excellent and safest strategy for beginners that are concerned about their lack of experience and high risk of loss.
Bottom Line
You will find an economic calendar for all trading markets—be it stock or forex trading. Utilizing these calendars to gain insights into the major release dates and time can be of great help for day traders. It helps you decide when to enter and exit the market.
