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Managing Market Volatility With a Futures Economic Calendar

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The release of an economic data report can dramatically increase the degree of volatility facing a broad spectrum of asset classes. Metals, energies, currencies, and agricultural futures contracts are susceptible to wild swings in pricing following an official announcement.

In contrast to a surprise news event, a scheduled data release can provide a wealth of opportunity. Given the proper trading strategy, it’s possible to maximize upside potential while limiting risk during these periods of enhanced volatility.

Know Your Futures Economic Calendar

Depending upon the scope of the data and product being traded, calm markets can come alive in the blink of an eye. In order to successfully navigate the sometimes turbulent waters surrounding a data release, it’s important to be aware of several key aspects of each report:

  • Type: There are many kinds of official economic data releases. Some originate from government sources, while others are furnished courtesy of the private sector. No matter the source, understanding the relationship between the hard data and market being traded is crucial in anticipating sudden pricing fluctuations.
  • Expectations: The industry consensus pertaining to the contents of an upcoming report is a major influence upon price behavior. Often, it’s not the actual statistic that drives market sentiment but whether or not it’s a surprise to market participants. If analysts miss a projection badly, markets can react violently.
  • Timing: By far, timing is the most important element of trading economic data releases. In the current electronic marketplace, information is exchanged in seconds, and trades are executed in milliseconds. Knowing the exact time an item is to hit the news wires is critical to engaging the market successfully.

Referencing a futures economic calendar is extremely useful for staying on top of daily financial events. Many media outlets and brokers supply them free of charge, including Marketwatch and Econoday

Here’s a small sample of influential economic events and the futures markets most sensitive to their public release:

Event Products Affected
Gross Domestic Product (GDP) Equity Indices, FX, Metals
Unemployment Situation Equity Indices, FX
Consumer Price Index (CPI) Interest Rates
EIA Petroleum Status Report Energies
WASDE Report Agricultural
FOMC Forecasts Equity Indices, FX, Metals, Energies, Interest Rates

How to Trade on an Economic Data Release

An economic data release acts as an outside stimulus to price action. Upon its dissemination to the public, market participation is bolstered. Although traders use many unique strategies for profiting from the action, two separate disciplines provide a framework for all: fundamental and technical analysis.

A methodology based upon market fundamentals is the traditional way to trade an economic data release. Under a fundamental approach, a trader interprets and uses the actual hard data to project future market behavior. For instance, if a report on U.S. GDP performance is lagging, an investor may take a short position in the U.S. dollar index to capitalize upon perceived future weakness.

Any trades are educational examples only. They do not include commissions and fees.

Fundamental strategies typically employ longer time frames. The objective is to profit from a potential trend that the data suggests, not necessarily immediate price action.

The second way of trading an economic data release is through a strategy based upon market technicals. In contrast to the fundamental approach, a trader uses assorted technical tools and indicators in an attempt to profit from direct volatilities.

Entering trades from a technical perspective can be great way to benefit from the short-term price action a data release often provides. Playing bounces, breakouts or momentum scalping strategies are a few ways that a technical approach can harness the potential of enhanced volatility.

Putting It All Together

At first glance, developing a trading plan for markets in the midst of an economic data release appears easy. Simply identify the time of the release, products impacted, and apply an appropriate trade management strategy. Unfortunately, there’s a bit more to this process than meets the eye. It’s important to realize that while enhanced volatility provides opportunity, it also increases risk.

A good place to begin the development of a rock-solid trading plan for these conditions is our online service suite. No matter your desired level of broker involvement, an experienced industry professional can help turn periodic volatility in your favor.

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