For the past decade, every day before I start trading I check the economic calender…except today. I predominantly trade forex so I check out the global economic calendar on DailyFX. Since I trade a wide array of pairs I need to know what major news releases are due out in all the major markets–AUD, CAD, USD, GBP, EUR, CHF, JPY and NZD. The economic calendar provides all the scheduled economic data releases.
Data releases are categorized into low, medium and high impact. Low and medium impact data may cause a few wiggles in the price but shouldn’t disrupt trading much. I don’t alter my trading practices for these data releases. High impact data releases are noteworthy and do affecting my trading practices.
When a high impact data release is coming out I won’t typically have any orders to enter positions near the current price. The reason is that price can become very erratic once the data is released, and it is gambling to jump into a trade right as data is coming out. Therefore, any orders I have to enter are put on hold until after the news announcement, and volatility has settled down.
Orders to enter positions which are at least 50 pips away from the current price (before the announcement) are left where they are and may be filled on the volatility.
Being aware of these high impact data releases is critical. Today I took a trade at exactly 5PM EST (June 11, 2014) because I had noticed a slight anomaly on the last few trading days as this time. The trade occurred in the actual forex market and ended up being taken at the exact moment the New Zealand Reserve Bank issued their rate decision–rate decisions are some of the biggest market events we see!
Needless to say, within about one seconds I knew something was wrong. I quickly looked at the global economic calendar and saw that the volatility I was seeing was due to the news release. The position I took was taking quite a loss, but I managed to grab a “hedge”–a trade that moves in the opposite direction and therefore should offset further losses in my current position–which resulted in the final damage being minimal (that’s why it pays to knows a little bit about forex correlations).
The point is that it could have been bad, very bad. I was trading the GBP/AUD which witnessed quite a bit of volatility, but not as much as NZD pairs. Had I been trading the GBP/NZD for example, I would have likely taken a much larger haircut. My goal was to just trade a small anomaly, expecting about a 10 pip move which I could profit from, instead the pair moves 50 pips almost instantly. That exposed me to a lot more risk than anticipated.
You never know how a trade is going to turn out, which is why I always stress only risking 1% on each trade. With binary options your risk is capped, so you don’t need to worry about an increase in volatility costing you more than you expect. Yet trading right around data releases can be a gamble, and therefore being aware of when it is coming out, and stepping aside for a few moments is usually the prudent choice.
Always check the economic calendar before you sit to down trade. The day you don’t just may be day it ends up hurting you. When things are going really well, or really poorly, is when people typically start to forget about the basics–like being aware of the data releases. So during these high and low times be extra cautious of making sure you are sticking to the basics, such as monitoring your positions size, capping daily losses, checking what news is due out and sticking to your trading plan.