How to Trade Using an Economic Calendar

Most economic calendars provide the news releases for three world regions or time zones (the US, Europe, and Asia), the times that each news release will happen in GMT, and the expected Forex volatility for each news release (either regular volatility or significant volatility). It might appear apparent what the economic calendar use is, however, there are right ways to use the calendar and there are wrong ways to use the calendar.

Contrary to what many newbie traders believe no trades should be made as a result of the economic data that is announced. Retail traders don’t have sufficient systems and resources to respond to what they think are real time data. By the time the retail trader has seen the economic data, analysed it, thought about what trade to make, it is far too late. It would be like entering a trend that is just about to reverse itself.

In addition the economic calendar and the various news announcements is not an excuse to not make any the trades either. If your forex signals are indicating that the time is right to make a trade then you should go ahead and trade. Don’t be put off by the fact that a news release is imminent. Don’t forget that in general a news release causes short term volatility and does not signal a long term trend but maybe a short term trend of a few hours or a few days.

Now I can hear you asking, ‘if I can’t trade off the economic calendar or I should not close down trades when there are imminent news releases in case there is unforeseen volatility, what should I use the economic calendar for?’ It helps you manage your trade. Once you know that a trade release is imminent the first thing you have to decide is if it will cause low or high volatility. You may then decide that low volatility will not hurt your trade so you don’t touch it. However, if you decide that the news announcement will cause high volatility albeit for the short term you might want to check and manage your stops. There might be a danger that the stops you placed at the start of the trade are in danger of being reached due to high volatility. So temporarily you might want to increase them until the market has smoothed itself out. The suitable reaction to a news release depends on where you are in the trade and where your stops are.

So now when the calendar is published this coming Monday you now know how to handle it.