Definition of the Economic Calendar
The economic calendar displays scheduled economic events or data releases related to the economy and financial markets. These events include the new gross domestic product growth rate, the latest non-farm payroll figures, and interest rate decisions – all of which are examples of what you might find in the economic calendar.
Risks from High-Impact Data/News
As a day trader, or even as a swing trader, the events marked in red are those you should be aware of. Volatility around the event is something common and expected, whether the data comes in higher, lower, or in line with market expectations.
Mitigating Risks Using the Economic Calendar
Check your economic calendar every morning before you start trading, and note the release times of key data.
In normal market conditions, you should know what your risks are in each trade. The risk in each trade – which is defined as the difference between the entry price and the stop-loss price, multiplied by the position size – should be less than 2% of the account equity, and ideally 1% or less.
Typically, your stop-loss order will get you out of the trade at the expected price, as long as you are trading a stock (or other markets) with a narrow bid/ask spread and sufficient liquidity (enough shares or contracts) at each price level to absorb your orders. However, when high-impact data is released, things can change drastically. You face a high likelihood of slippage (a worse-than-expected price on the order), which means that what was supposed to be a 1% risk trade could result in a 5% loss, for example.
You cannot know exactly what data will be revealed, or how many orders will flood the market when it is released in a reduced liquidity environment. Due to this unpredictability, professional day traders often close their positions in forex, stocks, or futures markets three to five minutes before the release of high-impact data. They also avoid making new trades until after the data is released. Since this moment of increased risk is scheduled, it can easily be avoided, and it is usually best to do so.
If you are trading daily options, you can hold your positions during the release of key data (or earnings). Many options strategies are designed to trade during these qualitative events. Options are a bit different from other markets. Once you buy the option (pay the premium), the maximum risk is defined – the premium you paid is the potential loss. When buying an option or closing the trade, slippage may occur, but you cannot lose more than the premium you paid.
Economic Calendar for Different Markets
Whether you are trading forex, futures, or stocks, there is an economic calendar for you. Forex and options traders can use dailyfx.com/calendar. If you are trading stock options, check the earnings calendar in the United States. Earnings significantly affect price, just like economic data releases.
Source: https://www.thebalancemoney.com/economic-calendar-trading-day-1031154
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