As we discussed last week, incorporating trading risk management strategies is crucial. Numerous traders believe it’s beneficial to refrain from trading right before, during, or immediately after significant events. If you relate to this, you might be wondering, “What constitutes a major event?” And how can you anticipate when such an event might introduce heightened market volatility?
Not every so-called “major event” result in a significant market shift. Conversely, the market sometimes reacts to data not labeled as “major.” This unpredictability can pose challenges for traders aiming to sidestep unexpected volatility, as we discussed last week.
Why Some Events Don’t Move the Market
There isn’t a clear consensus on exactly what are the “major” events. Economic data that is important to the market are typically seen as major events, such as interest rate decisions, the release of GDP figures, inflation, and jobs numbers. But, beyond that, there isn’t much agreement on what constitutes a “major” event. It’s not unusual, even, for a GDP number to not move the market, but then a “non-major” event such as a member of a central bank making comments in a seminar moves the market.
While every circumstance is different, typically the reason a major event might not move the market at all is that the results were within expectations. If the data is in line with what the market has priced in, then it most often won’t move the market. But if something comes along that’s unexpected, then it could substantially move the market.
Identifying Major Events
The economic calendar can give a preview of what’s coming up. The way to think about it is that releases of data that are important to the market could cause a major shift in sentiment if they aren’t within expectations. For that reason, it’s better to consider a broader range of events as important, beyond just the very big ones. On the Orbex economic calendar, events marked with a timestamp in either red or black are considered significant.
If you have chosen to stay out of the market ahead of one of these events, then you want to come back when the volatility is over. A method to discern this is by noting a discrepancy between the expected outcomes and the actual figures. If the market remains unresponsive and the data aligns closely with expectations, then the event’s impact is probably concluded.
Avoiding Surprises
Of course, there is no way to predict when something sudden might happen, such as the outbreak of a war. Or a significant natural disaster, like a major earthquake in an economically significant place. So, it’s always prudent to trade with stop losses and have proper money management.
But most of the major events that are likely to move the market are on the economic calendar, allowing you to get ready ahead of time. For events that are the most likely to move the markets, we often put out an article explaining how and why the market could be affected. Hopefully, this gives you an edge in your trading.
