The Economic Calendar

Having access to an economic calendar is essential when trading forex, especially if you are day trading. You need to be aware of any and all economic reports that are scheduled to be released during your active trading hours. In my trading, I take it one step further and in most cases I use the economic calendar to set my active trading hours for the day. I do this because my trading strategy uses the volatility and price movement created by the release of economic reports to produce profitable trades.

A good economic calendar will provide you with all the information you need to make sound trading decisions if you're trading around the scheduled reports. You not only need to know the date and the time of each report's release, you also need know the impact of the report, details about how to interpret the result of the report, the result of the previous report, the forecast result of the report, and the actual result of the report when it is released. It is obvious as to why you need to know the date and time, but what about the rest of the information I've listed?

You need to know the impact of the report on the market so you can set some expectation of how much of a move the report can potentially create. This is critical information for planning your trade. A report that has a historically high impact on the market will move the market far more than a report with historically low impact on the market if the results differ from the expectation.

You need to know the details of the report and how to interpret the results so you can decide if the report strengthens an existing trend or weakens it. It is not the case in all reports that a higher or more positive number in the result is good for the currency. For some reports, a lower or more negative number is good for the currency. If you don't know that going into the report, you could easily misinterpret the results and make a poor trading decision based on that misinterpretation.

You need to know the results of the previous report so you can compare the expectations for the current report to the actual result of the previous report. If the previous report was very weak, and the expectation for the current report is even weaker, this could indicate a progressively weakening trend for that particular currency making a downward price move even more probable even if the result comes in as expected.

You need to know the forecast result and the actual result of the report so you can compare the two numbers to see if there is a deviation. The greater the difference between the expected result and the actual result, the more the market can potentially move.

While there are many economic calendars for you to choose from, I've found the calendar offered by Forex Factory to be the best. The figure below shows an example of a typical list of daily reports and events.

It displays all the information we detailed above in a clear and concise manner. I've also expanded the "Detail" column for the Existing Home Sales report so you can see the information it gives you to assist in interpreting the result of the report correctly.