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Interpreting The Economic Calendar Properly

As a Forex trader, you must be able to interpret the forex calendar specifically, if you want to take advantage of the details it provides to improve your trading.

In the same way, fundamental analysis is important in forex trading, studying economic events also gives you an advantage of making a profit even when the market goes crazy.

Economic news will do you no good like every other news if you lack an understanding of what is happening and its timing. A glance at an economic calendar might suggest that it is easy to interpret, but when you take a more detailed look at it, there might be confusion here or there.

Everything You Need To Know About Economic Calendar

Trading in general and Forex trading, in particular, requires that you pay attention to both technical analysis and financial analysis. One shows you the direction of the market, while the other explains why the market is going in a particular direction. A number of these reasons are tied to events and news which can be known ahead of time, so traders can adapt to such releases and adjust their strategies.

Interpreting Economic News

The economic calendar is structured based on news. So, it is foreknowledge, and sometimes its details can be repeated over and over. The frequency of this release could be monthly, quarterly, or yearly, referring to a particular economy. After all, trading Forex involves currency pairs. What a trader does is simply compare two economies represented by their currencies and make decisions based on the details of his analysis. So, it will not be out of place to conclude that a currency is as strong as the economy that sponsors it.

Using The Color Code To Explain The Calendar

For whichever source you are using to view the Economic calendar, there are color codes attached to help you understand the calendar. There are three color codes on the economic calendar. They are:

  1. Yellow. This represents unimportant news from the volatility point of view. There is no need to pay attention to it since it is not going to have any impact on the way the currency moves.
  2. Orange. This means that you have a piece of second-tier news. It is likely to change quotations, but it depends on the comparison between the actual value released and the forecasted value.
  3. Red. It always conveys a sense of urgency, but this time it doesn’t mean that there is danger. But there could be a danger if you don’t consider this news to be as important as it is. This color is indicative of news that matters. This release is bound to change the direction of the market aggressively. Most automated trading algorithms make moves to either buy or sell currency pairs at the snap of a finger when they spot this nature of the event.

With these few but important tips, you are sure to set your foot on the right track as a Forex trader just by watching out for events and giving them the accurate interpretation.