In this Wiki, we will take a look at How to Trade Upcoming Economic Figures and how you might apply this concept to your trading.
This Wiki is part of our Fundamental and Sentiment Trading Strategies. Be sure to check that out HERE.
How to Trade Upcoming Economic Figures
Trading the economic calendar can be very profitable and the key is utilizing and understanding the information and the expectations available well ahead of the figure or event being released.
When deciding whether or not to trade an economic figure, traders need a deep understanding of the ongoing fundamentals, the current sentiment, and what the market is expecting from the figure.
For example, if the fundamentals are extremely bullish for the currency and the figure is expected to come out worse than the previous one, this would generally be a trade to avoid, because there is a contradiction between the fundamentals and the news event.
What we want to see is the figure to have expectations that are in line with the fundamentals. We want the figure to be better than the previous one if the fundamentals are bullish. In this situation, there is a good chance it will happen and the market will look for excuses to keep buying the currency in line with the buying that has already taken place.
If the figure doesn’t meet expectations it will likely pull back. The fundamentals will still remain intact because one bad figure in a long-standing series of positive figures doesn’t change the long-term outlook for that currency. The counter-trend move will most likely be temporary and the price will soon recover, likely sending the trade into profit anyway. This is the kind of situation that gives us a nice pullback to get in on and make some pips. This will be the case unless the deviation was so large that we have no choice but to reevaluate the fundamentals. This works in the same fashion for weak currencies. We would simply look to sell or go short instead.
Positioning yourself directly ahead of these events is more risky, but as long as you only trade in line with the fundamentals, drawdowns will likely be temporary. Waiting for the figure to pullback is another way to get in this trade but can be trickier and requires a higher level of skill and patience. Sometimes the price doesn’t come back if the deviation on the figure is big enough to force market participants to rethink their game plan.