By Adinah Brown
One of the main arguments between fundamental and technical traders is the use and relevance of the economic calendar. Fundamental traders consider it key to much of their trading activities, as it’s a tool for reporting fundamental information.
Technical traders have a different interest in economic calendars. Because they don’t trade on fundamental data, the actual data itself is relatively unimportant, but that doesn’t mean that the announcement is unimportant. The metrics that are valued by technical traders, like volume, volatility, price actions, sentiment, overbuying and the like, are significantly impacted by an announcement.
At its core, the importance of an announcement is the same. For fundamental traders it is the actual information and its impact on the fundamentals. For technical traders, it is how the announcement will impact traders. Which means that in a backwards way, the information itself is of some significance to technical traders.
Because of the varying methodologies, the use of an economic calendar is different. For a fundamental trader, news is everything, and the relevant announcements in the calendar must be a strong part of the trading process. Setting reminders and knowing the details of the announcements are two important aspects of this.
Reminders
Free Reports:
At the beginning of the week, fundamental traders will look at the calendar for upcoming important announcements. But it is the reminder that is critical. Some brokers will have reminders built into the software, which is a help, but it is also important to have a method of reminding yourself in good time. This is easily achievable, since modern living (i.e. your mobile phone) has furnished us with millions of ways to remind ourselves of events (whether we want to be reminded or not). Set an alarm or an event or a reminder or a note or whatever, as long as it sends a push message to your phone it will do the job.
Keep on top of the announcements
If you need the information as soon as it is reported, you need a tool that gives you the details in real time. There are a few methods to do this, but listening to the news first hand is often the best way. Sometimes this capability can come free with the platform, depending on the brokerage. If you are a more expert trader, you would likely use a Bloomberg terminal or real-time Reuters data (Eikon), and be covered for this sort of activity.
Technical traders will also benefit from these methods and should at least use the first method. The second method is not as critical, depending on the specific strategy used. For a technical trader that scalps during high volatility like announcements, the expectation of the market and direction of the market is critical.
The challenge for traders is how to incorporate announcements into your trading. Many avoid trading during announcements, with widened spreads and volatility making it a dangerous place to trade. Others, need volatility and make their best trades at announcement time.
For those who do trade irrespective of announcements, implementing the method of watching the calendar is critical. It differs significantly from trading during a period of no announcements, since the information related by the announcement is occurring and changing the market. The easiest way to deal with this is to have a decision tree for each announcement, with entry and exit points in the tree. In an ideal world, this would allow you to open pending positions in the market. Yet this too has its dangers and drawbacks. In a heavily volatile market, stop losses can be triggered just before a massive reversal and slippage can mean that the losses can’t be controlled.
Whatever your method of incorporating the calendar into your trading, in order to maximize its effectiveness it needs to be incorporated comfortably into your trading style. That way it can be used properly at times when the market is calling for a quick decision.
About the Author:
Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.