How to Read the Economic Calendar

The economic calendar is one of the most useful tools, or rather resources, for a Forex trader. Its purpose is to inform about the main economic and financial events, while offering specific indications about the impact they may have and the performance they could express. At first glance, the economic calendar appears easy to read. However, it is necessary to optimize the analysis activity, starting from reading, to transform it into a real resource for trading. In this article, we offer an overview of the economic calendar and some tips for analyzing it in the best way.

The importance of the economic calendar

Why is the economic calendar so important? Here are three valid reasons:

Fundamental Analysis vs Technical Analysis

Fundamental analysis does not exist without the economic calendar. In fact, it can be safely stated that the economic calendar is the main tool with which to practice fundamental analysis. In turn, fundamental analysis is simply a necessary activity for those who practice Forex Trading (as well as any other type of speculative investment). Many believe that fundamental analysis can be set aside or neglected in favor of technical analysis, considered more objective and simple. In reality, this is a prejudice, and a very damaging one for the purpose of achieving profit. Technical analysis and fundamental analysis are complementary. Hence the need to practice an effective study of the economic calendar.

The link between the economic environment and Forex

The economic calendar allows you to know which economic events will occur today, this week, next month, etc. Economic events that always generate an impact on Forex, obviously to varying degrees. The link between economic events and Forex is undeniable and often even acquires a power superior to the dynamics of exchanges. Forex is not an isolated market, assuming that nowadays, in the midst of globalization, an isolated market can exist. Also because, when you think about it, Forex is made up of currencies, and the cost of money is a decisive element for any economic activity. Hence, the need to study the economic calendar with precision and effectiveness.

The readability of the economic calendar

Fortunately, the economic calendar is also "readable". Let's be clear, this does not mean that it is easy to get the best out of it. Simply, it is structured so that information is provided in the shortest possible time, almost at a glance. The difficult part, of course, is interpreting it. All economic calendars, in fact, are drafted more or less in the same way. Events are arranged in chronological order and are accompanied by information about times, reference to the economy they belong to (indicated by the national flag), the time horizon they refer to, analysts' forecasts, and the latest available data. In general, even at a superficial glance, it is possible to acquire all the important information relating to an intervention.

5 Tips for studying the economic calendar

Below are some tips for studying the economic calendar and turning it into a catalyst for trading activity, a resource to increase the chances of profit.

Know the impact dynamics

Not all events impact in the same way. In fact, the mechanisms of impact or simply influence are the most disparate. The important thing is to know them, in order to immediately identify the possible reactions of the currency concerned. It's not as simple as you might think, also because the impact dynamics can be direct or indirect. In general, they are direct when that specific event modifies the money supply in an almost technical way (think of changing interest rates). On the other hand, they are indirect when the event affects, more than the money supply, the perception of investors and therefore exchanges.

Don't study it all

It is not necessary to analyze the entire economic calendar. Also because it would be a considerable effort and would require a lot of time. Sure, it's good to read it all, in order to have an overview of the day, but it is necessary to focus on some elements, that is, on those that can really affect the currencies present in your portfolio. Focusing on the economic calendar as a whole is a mistake that is often made by beginners, more for a matter of confidence than ignorance. Those who are just starting out need as much information as possible, perhaps to increase the degree of perceived security, and this is reflected in the way of analyzing the economic calendar. In-depth and extensive study, however, is a double-edged sword.

Choose market movers precisely

The corollary of the previous advice is the following: to ensure effectiveness in the analysis activity, it is necessary to choose which market movers, that is, which economic events, to take into greater consideration. The advice is to take into consideration not only those related to the real economy of the currencies present in the portfolio, but also those linked by a relationship of interdependence. It is not easy to produce an assessment of this type, so often important elements are overlooked. With time, however, everything becomes simpler and, indeed, it is even possible to develop your own routine, which allows you to save time and energy, and increase the degree of perceived security. The routine, in fact, in trading as in life, is very reassuring.

Compare forecasts with historical data

Actually, as exhaustive as the economic calendar may seem, the information contained in it is not enough. Or, at least, it is not sufficient for the interpretative practice, which is then necessary if the purpose is to transform the economic calendar into a tool to increase the chances of profit. Among the information not mentioned in the economic calendar, yet fundamental, historical data stands out. Of course, the latest official figure is always included, but it is clearly not enough to contextualize. Now, some economic calendars offer a link to historical data (by clicking on the event) but others do not. In these cases, the research must be autonomous.

Pay attention to importance indices

In some cases, the economic calendar can even be misleading. The reference is to the importance indices that are inserted, usually, next to the event, on the left side of the calendar itself. They are often represented with asterisks or other graphic signs ranging from one to three. The truth is that often these importance indices are subjective and change from calendar to calendar. If the calendar is created by an American platform, some events will have a different index than those proposed by a European calendar. The advice is to take the importance indices with a grain of salt and, rather, form a personal idea of the importance of each event, based on your needs, your portfolio, and your trading style.