An important trading tool for all investors is the daily economic calendar. Irrespective of whether investors choose to utilise fundamental or technical analysis, economic news and market sentiment will still have a marked impact on the performance of their stock portfolio. Major economic or political news can cause stock prices to rise or fall dramatically in mere seconds, and fundamentals that are entirely relevant one moment can be rendered completely obsolete the next due to fresh news. In these cases, it is important to keep abreast of these incidences, and it is the economic calendar that allows investors to do so.
How Investors Can Protect Themselves Against Negative Events
The most impactful events that will influence the stock market are often known about months in advance, and for investors who have access to information such as when and how they will occur, research and analysis can be performed beforehand, and used to shield them from any negative fallout by informing their decision-making.
This is the trick to trading the economic calendar successfully, and veteran investors will always attempt to position themselves securely before the actual consequences of an event. Novice traders, on the other hand, are not proactive, and are forced to react to happenings as they actually occur – a very dangerous game to play.
Economic Calendars and How They’re Used
The most important tool in guarding against unforeseen market volatility is the live economic calendars that stockbrokers such as FxPro.co.uk provide. These usually contain seven columns:
- The time that data will be released
- The country announcing the data
- The event
- The potential impact on the markets (3 bars indicates a major event, 1 bar a less significant occurrence)
- Actual published data
- The consensus of the numbers
- Previously published numbers
Investors use this information to try to predict the impact that economic changes will trigger and how these will impact their portfolio. The consensus column contains some of the most influential data in terms of their decision-making, as it specifies average approximations of a large number of analysts.
Once investors reach a conclusion as to how they feel the market will react, they will act on this foresight to enact trades that they feel will be beneficial in the future. If they have gotten it right, it means that when the announcement is made and its consequences begin to be felt, they have already reacted in a manner that benefits their portfolio. This has the added advantage of maintaining market stability, as provided the consensus matches announced figures, little impact is felt.