How to use the forex factory calendar?
The forex factory calendar has become one of the most popularly used economic calendar when it comes to forex trading. The forexfactry.com calendar is free to use and a valuable resource when it comes for keeping a track on the currency markets.
Forex factory is a trading forum where traders share and discuss their ideas. The forum has been around for a long time and has evolved quite a bit. Besides the calendar you will find the latest news related to the economic releases and much more.
While there are many other economic calendars available,
the popularity of the forex factory calendar is that it is easy to use, and you can also find a host of useful information.
As a trader, while technical analysis might be the primary way to trade the markets, it is also important that traders keep an eye on the fundamentals. This is because it is the fundamental events that form the basis for driving price action.
To put this in another way, technical analysis is the method of predicting future price based on past price history. Fundamental analysis on the other hand explains the factors behind driving the prices. True, sometimes, price action can be erratic.
For example, you might have come across times when some good economic releases end up with price turning bearish. This is nothing but a mix of the fundamentals and the technicals. When looking at an economic calendar, the main thing to remember is that the price chart you see discounts all the prevailing news.
When there is a surprise in the market, or in other words when prices does not discount the news, that is where you get the strong market movements. Therefore, as a trader it is always in your best interests to keep an eye on the economic events that are scheduled.
Before we get into the details, there are a few things to understand first.
What is an economic event?
An economic event in the context of the currency markets is a scheduled news release that will have an impact of the currency.
The economic event could be a news report such as measuring inflation or unemployment rate. This is nothing but fundamental economic data that is released by almost every country. The economic report basically states the health of the economy.
There are basically two types of economic events.
- Scheduled economic events are those which follow a preset calendar schedule. For example the GDP report for the quarter is released a few weeks after the end of the quarter. Likewise, a monthly unemployment report is released during the first Friday of the month for the previous month.
- Unscheduled economic events are those that are not scheduled but are formed depending on the market developments. For example, a major crisis could trigger a central bank governor to make a statement. Or snap elections which plays a major role in the currency markets also qualifies as an unscheduled economic event.
Between the above two types, the unscheduled economic events have a larger impact than compared to the high impact scheduled economic events.
When an economy is doing good and is steadily expanding with inflation staying stable, the central bank can afford to hike interest rates. When interest rates are higher, relative to another economy and thereby its currency, investors flock to the currency which offers higher interest rates.
Of course, it is not just interest rates that determine the performance of the currency. Other factors such as economic and political stability also play a major role.
An important thing to understand is that the markets are always forward looking. Therefore, there is a good chance that price will foretell what the economic outlook is going to be.
Sometimes, a currency can appreciate even when the interest rates are low. This happens when a central bank engages in stimulus programs in order to boost its economy.
Economic events are the cornerstones for news trading. This is a strategy where traders trade only around news releases. New releases create a lot of volatility and you can make quite some profits.
What is a forex economic calendar?
Now that you know what an economic event is, the next thing to look at is what is a forex economic calendar.
For those of you who have traded stocks, you would know that the equity markets also has a calendar known as the earnings calendar. The earnings calendar basically tells you when a company will be reporting on its earnings and so on.
Likewise, a forex economic calendar is a calendar of scheduled events which shows which economy will be releasing what type of data.
When you combine the information from the economic event based on the forex economic calendar, you can get a better view of the markets.
As mentioned earlier that the markets are forward looking, you will almost always find that the price action you see potentially reflects what is going to happen. Therefore, it is not surprising to note that sometimes ahead of high impact news releases such as monetary policy decisions, the currency can rally or decline.
This happens because the markets are looking forward to the economic release and have a preset expectation in mind. These expectations are not random but simply reflect the trader’s positions and outlook.
When you have a strong set of economic data such as good GDP and unemployment figures, there is a good chance that the central banks will be hiking interest rates.
As such, ahead of the central bank decision, the markets already have a fair idea of what the central bank will do.
A forex economic calendar will show this in what is called the market expectations.
But remember that the markets are not always right. Therefore, while price can rally into a major event, a disappointing news release could easily pull the currency lower.
Now that we know what is an economic event and what is a forex economic calendar, let’s go into the details of the forex factory economic calendar.
By the end of this article you should be able to build your own economic calendar in terms of personalization and be able to better read news releases.
How to use the Forex factory economic calendar
Below is a screenshot from the ForexFactory.com economic calendar section.
Forexfactory economic calendar
The economic calendar can be found on the main page of the forum. There is a lot of customization that you can make. Of course, the personalization of the economic calendar can be made when you register for a free account.
Before we go any further, let’s break down the different sections of the forex factory economic calendar.
The calendar sits on the second section of the website, just above the start of the forum threads.
The calendar is divided into nine columns.
The date and time columns show the date of the event and the time. You can change the time by clicking on the time display on the top right corner of the forum.
Here, you can adjust the time to your time zone. When you do this, the rest of the times in the economic calendar automatically changes. This gives you the economic event schedule in your local time, so it is easier to follow.
The next columns, namely currency and impact are self-explanatory. The currency column shows that currency that will be impacted the most for the economic event.
For example, a U.S. nonfarm payrolls report will certainly impact the USD more than any other currency. Likewise, a New Zealand producer price index will impact the NZD currency.
The impact column is a small folder like icon and comes in three colors. Yellow, orange and red. You will also find a grey folder icon.
The grey folder icon means that the currency is on a bank holiday. This means that there will not be any news releases for that currency.
The yellow folder icon shows low impact events. These are events that are scheduled but does not have any major impact of the currency’s volatility.
The orange folder shows medium impact events. You can find a majority of economic news schedules coming under this category. The news impact of the orange folder icon can depend on market conditions. For example, the Eurozone’s flash PMI’s are one such news releases falling under this category.
Finally, the red folder icon are high impact news releases. These news releases tend to have the ability to move the markets strongly. Some examples of events under the red category include central bank interest rate decisions, GDP releases, unemployment report and so on.
You should not ignore the economic events coming under this category.
The next column is the events section. This is a brief description of the event. The next column is the detail. When you click on this icon, the news item expands and gives you more details.
Here, you can find an explanation of the economic event and the source of the news as well as the effect it can have in the markets. You will also be able to see the next scheduled release and other information worth reading.
The right side of the expanded box shows a list of news articles and headlines. You can click on this to read more.
Forexfactory.com Economic calendar – News details
You can also see the previous five releases and when you click on ‘More’ you can expand this even further. You can also click on graph, which is the same as clicking on the graph icon on the extreme right.
This depicts the numbers in a graphical way, as shown below.
Forex Factory Calendar – Graph
The remaining sections are Forecast, Actual and Previous. The forecast column is what the markets are expecting from the news release while the actual is the actual number that is released. The previous column shows that most recent previous result of the news event.
These three can give you an estimate on how good or bad the economic release has been.
Customizing the economic calendar to your preferences
We have already discussed how you can customize the time of the economic calendar to reflect your local time zone. Besides this, you can also further customize the economic calendar to show:
- Economic events only from the currencies you want
- Filter by the impact level
- Duration of the economic calendar
Let’s take a look at each of these customizations in detail to truly capture the effect of the forex factory economic calendar. To customization you can click on the filter icon on the right side which allows you customize the economic events. The filter icon on the left side allows you to select the duration of the calendar.
Filter by currency
After you click on the filter icon on the top right side of the economic calendar, you will see an expanded box as shown below.
Forexfactory – Economic calendar filter
As you can see, by checking the boxes you can filter out the economic calendar. Starting from the left side, you can choose all or only a few currencies of your choice. The currency that you check is the currency that you will see on the calendar.
The left side top corner is where you will filter by the impact type. You can usually uncheck the grey folder icon as it only shows holidays. Depending on your choice, you can choose to see either all or only high impact news releases.
Finally, the bottom left side of the box allows you to filter by event type.
This is ideally used by professional or experienced traders. You can filter events such as only inflation data for example or just check all.
The next customization you can do is the duration. To do this, click on the date that you see which will open an expanded box.
Economic calendar customization – Dates and duration
As you can see, you will be able to select a duration of your choice. There are some default settings such as Last Week, Next Week, Next Month or Last Month. You can also select the drop down next to the Default View to see whether you want to see data only for today, tomorrow, this week or next week.
Once you make the above customizations you can have your own personalized forex factory economic calendar.
With the above customizations you are now able to create your own economic calendar of your choice. For example, if you only trade the EURUSD currency pair and you are based in Asia, then you can set the time in forex economic calendar to your local time zone.
You can then customize the forex factory economic calendar to only show you high and medium impact news releases only for the EUR and the USD currencies.