As you have found many people and websites suggest you pay close attention to the economic calendar, now you may wonder about the importance of economic calendar for the traders.
Traders usually spend one minute or less with it each day. But that one minute can be crucial for you to be a profitable day trader.
The definition
An economic calendar is a typical calendar that shows the scheduled news events or the releases of data related to the economy and financial markets. That includes the gross domestic product (GDP), interest rate decisions, and many more.
There are loads of economic events happening each week, or even each day. Those events and the scheduled release time are listed on Economic Calendar.
Each of those events is graded. Their grade depends on the Economic Calendar website you use. The grades are divided into three, low, medium and high.
Events labeled as low, usually are minor and have a minimal market impact. The medium events usually have a yellow dot or star. That indicates that you have to be careful during this time.
For high events, they have Red stars or dots. That indicates significant news or data release that can move the market in a significant way.
The risks
All traders, both day traders, and swing traders should be aware of the events marked red. The volatility around that event is typical.
Many traders pending their orders during that moment. Consequently, there is usually a drop in liquidity even before a market-moving occurs.
The price will narrow back and forth due to fewer orders to absorb market buy and sell orders.
Reducing the risks
The only way to reduce the risk is by checking your calendar every morning before you start trading. Remember the times of each major data release and arrange your strategy accordingly.