So, you want to know how to evaluate data on economic calendars?
When evaluating the value of data on an economic calendar or any other type of commercial website, it is essential to think about the site’s aim.
Some sites provide financial information without bias to promote their agenda, while others may push a specific product or company. Still, some try and sell advertising space with no real intention of providing valuable information (although they can be considered general entertainment).
Being here means that your motives are not purely selfish or sinister; you want access to good quality data to give you an edge in your trading. You can reach your goals with the help of a great broker like Saxo.
Economic calendars are among the many online tools that will help financial traders improve their decision-making ability. It is essential to know how to use them effectively, but it is more important to understand how they work and what you can expect from each of them. This guide will try to walk the fine line between these two aims.
When referring to economic calendars or even ‘ economic data’, I am not talking about government statistics on unemployment, inflation, tax revenues etc., instead of the data behind those numbers supplied by companies with an interest in promoting information about their financial performance or products.
For example, if a company makes most of its money from exporting goods overseas, it would be in their interest to promote the data showing an increasing demand for their products in overseas markets. If a company is relatively new or financially unstable, it would be in their interest to promote information on good news about their performance rather than the country’s aggregate economic data.
Evaluate the data
So when the time to evaluate which data you should use comes, you have to ask yourself what your aims are and what kind of data will provide valuable insight into that goal. Since most financial traders want to know about market movements, having access to real-time economic calendars of sentiment indicators, manufacturing reports etc., will give them this information without any bias attached with other sources.
The simpler your objective – e.g. “I am a speculative trader looking to make a quick profit on one or two trades per week” – the more likely it is that you will get by without needing any of this data at all. If your strategy is based entirely on breaking news, you might want to consider setting up some automated system that informs you whenever anything relevant happens.
However, suppose you’re invested in a high-frequency trading algorithm. In that case, you will be interested in how often changes from these sources impact the asset price and where different algorithms stand relative to each other for prediction accuracy.
In this guide, we will assume that:
- You have very little time and money for researching data sources.
- You do not have access to expensive software capable of analyzing complex multi-factor models.
- You cannot develop your high-frequency trading algorithm.
Then, in order of importance, I would suggest that it is more critical for you to know which data sources are likely to be most reliable rather than worrying about what kind of data they provide.
To figure out who has an incentive to lie or mislead you, think about who provides the data and ask yourself what they stand to gain from your decision-making process. If the site is trying to sell advertising space – i.e. make money through clicks rather than sales – then there is a good chance they will promote information that makes their sponsors look good.
Or they will focus on making their website statistics look impressive (however meaningless those numbers may be). The same goes for websites that are trying to get you to download their trading software. If the data is biased in their favour, they can be confident that you will stay on their website for longer, giving them more opportunities to sell you their products.