How to use the Economic Calendar for Binary Options trading
The Economic Calendar is sometimes called the forex news calendar. This name arose because the forex market gave this schedule of financial news events its popularity. It would not be entirely accurate to name the calendar the forex news calendar because the information it contains is used by financial traders in all markets. However, the forex market is the financial hub where the greatest response to the news events occur, which is why the name “forex news calendar” is most likely going to stick around for a long time.
The Economic Calendar can be described as a timetable of political and economic events, which show results of the performance of the indicators used in assessing the performance of the listed countries, or sectors of the economies of the listed countries. Due to the fact that the measured indicators are determinants of how sound the economy of a country is, traders in all financial markets use this information to determine future market direction and as a basis of investment decisions that they make in the short, medium and long term.
The Economic Calendar is usually found on several websites (including this one) and can be accessed by traders at no cost.
Economic Calendar Tool – Weekly Events:
Elements of the Economic Calendar
A typical Economic Calendar will contain the following elements:
a) Time of news release. This is usually listed in US Eastern Time, which is the standard time used in the financial markets. Some versions of the Economic Calendar will allow traders to customize the time to their local time or any other time for that matter.
b) The country that the news release is emanating from. Usually the abbreviated name of the country or the flag of the country is displayed. This information tells the trader which currency is likely to witness volatility when the news item is made public.
c) The name of the news release/fundamental indicator to be traded. Here, there may be a clickable link which shows a drop-down bar with the explanation of what the specific indicator measures and its importance to the economy of the affected country.
d) A volatility meter which is shown in several formats. Common formats include stars, colour codes (red, amber and green) or exclamation marks (one, two or three which may or may not be colour-coded). This indicates the impact that the news item is likely to have on the affected currency. The range is from low to medium and then high impact (depicted by red colour, 5 stars or three exclamation marks). The only tradable news item is that with high market impact. The spectrum of what constitutes high impact news is forever changing with the dynamics of the global economy.
e) A column for the Actual number.
f) A column for the Consensus/Expected number.
g) A column for the Previous number (may not always be present).
h) A column for Revisions made to previous actual numbers.
Interpreting the Economic Calendar: The Trader’s Approach
The trading approach to the use of the economic calendar starts from the date and time of the Economic Calendar, which traders should note so that they can possibly line up to trade the news item (if tradable). Knowing what time the news will be released also serves to warn traders about when they should consider closing any open positions so as not to get these positions exposed to the vagaries of the post-release market volatility.
A note is then made of the high impact news items, as these are the only ones worth trading. The trader should also note the country from which the news is emanating from. It is good practice to read a little around this. It is not in all cases that the currency of the affected country is bought or sold when the news is released. A good example is the US Retail Sales report. There have been occasions when Yen crosses such as the EURJPY were the currency pair of choice to trade this news item, instead of the traditional USDJPY currency pair. Try to find out the best currency pair with which to trade a news item.
The attention will then shift to the name of the news release. Click any links here to read a little about the news to be traded and what a positive or negative number will mean for the asset.
Next, attention shifts to the numbers: actual, consensus, previous and revised numbers. Many people overlook revisions to their own detriment. A revised number can dictate the response to the latest release, as market participants may become more bullish, bearish or neutral than they would have been if there were no revisions. An asset will be bullish if the difference between the actual and expected figures is more positive, and bearish if this parameter is more negative. The degree of volatility is determined by the degree of deviation, as well as the degree of deviation between the actual and previous results.