What is an Economic calendar and how to use it?
It is a calendar used mostly by traders or short term investor to track the occurrence of market moving events such as monetary policy decisions and economic data. Generally events are announced in a report and have a high probability of creating high volatility in financial market. The most influential events include consumer price index (CPI), Wholesale price index (WPI), Gross domestic product (GDP), Payroll data, purchasing managers’ index (PMI), Manufacturing index, service index and central bank policy.
Using economic calendar you can know event date, data forecast and predict possible direction of market earlier than others and make trading or investment strategy according to that. Here you can get earlier information about economic data and events from US, EUROPE and ASIA. Let’s take an example to understand. Suppose today is 1st April and RBI policy will be on 7th April. Watch the forecast interest rate and previous interest rate. If there is a chance of increase in interest rate then market may move in negative direction and in case of rate cut market may move upward.
Stock market rally much before any big economic event. This rally is generally driven by FII, DII and smart trader much before the actual event and generally they book profit on the event day. Normal trader those who don’t track economic events invest on that event day and get trapped. So it is advised to track economic events much before to make trading strategies.
Take example—In case of RBI policy, Nifty and Bank nifty rally one week before policy day and when result of economic events come they book profit and normal trader get trapped. You can know what big investors are doing in EOD chart page.