Day traders seek to make profits from small market fluctuations over the course of one day. They buy and sell shares, securities or foreign currencies, leveraging short-term trading strategies to make money. Day trading is profitable, but it relies on sound knowledge of current market conditions, and if you ignore the latest news and data releases, it’s much harder to make a profit.
Knowledge is Power
Trading without the benefit of up-to-the-minute news stories is a high risk strategy. Inexperienced day traders can lose a fortune if they don’t have the right strategy in place. Knowledge is power. Updates and data on the latest consumer confidence figures or manufacturing PMI can have a significant effect on the financial markets, so it pays to be one step ahead, which is why an economic calendar is so important.
Red Equals Danger
Most day traders only spend a few minutes of their working day scanning the events on an economic calendar, but this is always time well spent. Economic calendars are a schedule of forthcoming data releases and major news events. There are many data releases each week; often several in a day. Some events are classed as low impact, but others have a high impact and are graded as such. If an event is graded as ‘yellow’, caution is recommended, but if an event is graded ‘red’, there is likely to be significant movement in the markets when the data is released.
For a day trader, it’s the ‘red’ events that matter the most, so it is these events a professional day trader will pay most attention to when they plan their trades. Nobody knows how much of an effect a critical news story will have on the financial markets, so savvy day traders will wait until the report or news story is published before. Under normal trading conditions, a day trader will know their risk (ideally 1% or less). A significant data release could cause a large loss, so professional day traders always close out their positions a few minutes before the data is released. It is also wise to avoid making new trades until data has been released.
Use the Right Economic Calendar
There are different economic calendars for different financial markets, so it is important to select the right calendar for your trading activities. Economic calendars don’t eliminate risk entirely, but they do help to minimise risk, which in an unpredictable day trading scenario, is essential.