Have you ever had one of those trading setups that boasted a staggering amount of confluence fail in dramatic fashion? You know the kind of setups that wouldn’t look out of place as wallpaper on your mobile phone! Of course you have. We all have! One reason the area may have fell flat could have been due to a scheduled news event.
Experienced traders are generally conscious of what’s ahead on the economic calendar and understand how to interpret the numbers. Newer traders, on the other hand, often expose their positions to unnecessary losses around news time. This, especially for technical traders, is not considered ideal trading conditions and should generally be avoided.
Economic news releases have the ability to drastically affect the financial markets. Depending on if market expectations (we’ll get to this) are met or not, this can cause price action to fluctuate rapidly and see trading spreads widen (the difference between bid/ask is called spread – it represents part of broker’s service costs).
It is important to remember that spreads are variable, meaning they will not always remain the same and will adjust as liquidity providers change their pricing.
Traders might also want to note that increased volatility, often caused by news, brings periods of illiquidity in the market, potentially making it difficult to enter/exit at desired prices due to the widening of spreads. This is called ‘slippage’.
To simplify things, we’ll use the economic calendar provided on forexfactory.com as an example:
With a greater understanding of an economic calendar’s features, getting caught unaware should now be a thing of the past. To make sure you’re always one step ahead, it’s advised to note each market-moving event BEFORE your trading day begins.
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