Day Trading can sometimes be likened to a roller coaster ride. It can be fun and exciting; however, there will also be times where you feel out of control. Consequently, it makes sense to reduce the out of control feelings and increase the excitement of placing successful trades. There are two ways of accomplishing this: Get out of trading or utilise tools and strategies to help you feel in control at all times.
The first option, get out of day trading, is a radical decision. However, it’s not really viable. It is far better to learn to use the wide variety of analytical tools and statistical information available to help you make sounder trading decisions.
One of these tools is the Economic Calendar.
Before we look at what an Economic Calendar is and how to use it effectively, let’s take a quick look at what day trading is.
What is day trading?
Succinctly stated, day trading is described as the opening and closing of a trading position within a single trading day. It is seen as a short-term trading strategy that is designed to utilise large amounts of leverage to capitalise on the small daily price movements that occur in highly liquid stock or currency markets.
Incidentally, one of the best short-term trading financial instruments is the Contract for Difference. It makes sense that short-term trading has a more significant exposure to risk. Therefore, day traders are and need to be, highly educated in order to mitigate their exposure to risk.
The Economic Calendar: What, why, and how?
As mentioned above, the Economic Calendar is one of the tools which helps traders determine their trading strategies and make sound investment decisions. However, it should be noted that day traders need to consider the Economic Calendar their best friend.
Even though it is not necessary to spend hours analysing it on a daily basis, it is still a crucial tool, especially if traders want to profit on a regular basis. They only need to spend a couple of minutes every day studying this calendar to ensure that they are up to date with global economic events that will impact on market movements and determine CFD trading success or not.
Thus, in order to demonstrate the importance of the Economic Calendar, let’s ponder the following three questions:
What, why, how?
In essence, the Economic Calendar is a calendar of planned economic and financial market news events or data releases (like economic indicators and monetary policy decisions) displayed according to days, weeks, and months of a year. Because there are tons of economic news releases per week and per day, they are graded, and marked, according to their trading impact. They are also listed per day in chronological order from the earliest event to the latest event in a 24-hour cycle. Because the global markets open and close one after the other, the news events occur one after the other.
At this juncture, it should be noted that different trading brokers offer various forms of economic calendars. Some are more user-friendly than others. For example, the Jones Mutual financial analysts make sure that their calendar is easy to read and understand with the events marked according to the impact that they can have on day trades. In summary:
- Low-impact events generally do not have any markings. They are listed on the calendar for informational purposes.
- Medium-impact events are usually listed on the calendar with a yellow mark next to them. This indicates that the trader should pay attention to these events, but they are not necessary “show-stoppers.”
- High-impact events are marked with a red star or dot next to them. This indicates that the associated news event is likely to affect the market in a significant way and traders should be cognisant of the event’s potential effect when deciding on trading strategies.
Inherently, high-impact economic events increase investors’ exposure to risk which is why pending trades are often cancelled just before a high-impact event takes place. On the other hand, traders tend to ignore low-impact events when deciding on trading strategies, while they take cognisance of medium-impact events when making trading decisions. However, because these events do not necessarily cause significant market shifts, they are not taken too seriously.
