The importance of understanding economic calendar releases
Defining an Economic Calendar
In economy and finance, the news events and data releases are public and scheduled. Some examples are GDP growth rates, non-farm payroll numbers, and decisions on interest rates. Where can one access these? An economic calendar keeps track of all of these. These releases are essential to know, especially for professional day traders, since they affect the movement of prices or even markets. Traders and investors can take advantage of economic calendars to plan their trades, reallocate their portfolios, and be aware of chart patterns that can be affected. Economic calendars are free on most websites in numerous countries.
Economic data release grades
The data releases have a grade basis. They may be low, medium, or high grade. Usually, financial data is released every week and daily during a busy season.
- Low grades are minor events that tend to have a small impact with no unique markings.
- Medium grades are events that have an impact. Their markings can either be a yellow dot or a yellow star beside the indicated event.
- High grades are events that can have a significant impact on the market. Their markings are red dots or red stars.
Risks of high-grade economic data
High-grade releases and events with red markings cause a massive impact on the market. It may be useful or worse, so traders go on the safe side and cancel their pending orders before the event even begins. Then, there will be a drop in liquidity. Canceled orders mean a back and forth in the prices before a constant direction forms.
Economic calendar indicators
Listed below are economic calendar indicators that can help a trader in decision making.
- The Personal Income and Outlays Report. This monthly report is information about consumer behavior and consumption in dollar measurement. It influences the economy's future direction and customer price index.
- The Producer Price Index. It is a price index with a wholesale or producer level measurement excluding imported goods. This report is an inflation indicator, and its encouragement causes a positive effect on the market.
- The Productivity report. It measures an organization's output level per labor unit through gross domestic product and labor figures.
- The Purchasing Manager Index. It indicates all issued monthly report headlines.
Tips on how to avoid risks through an economic calendar
The economic calendar helps traders in their daily decision making. A wise trader will check and list down high-grade events with red markings expected to cause volatility in the market. It might only take a minute, but this minute can massively benefit a trader.
A wise trader knows how to evaluate risks. It
should not go beyond 2%, and the most ideal is only 1% or even less. A risk is
entry price minus stop loss and then multiplied by the position size. A
high-grade economic release can cause slippage to a trader. Slippage is when
you expected an order price, and it comes out worse. For example, the 1% risk
trade went downhill to a 5% loss. Market behavior will always be unpredictable. It's a given
fact, so traders usually try to avoid high-risk events by closing out stocks
and avoiding making new trades before a data release.