There is no debate that economic events cause volatility. At the same time, we as traders need volatility. The only thing that is left to be asked, is if that volatility is dangerous.
Like many other things in life, it is not black and white. The answer is, it depends.
- If you are not prepared - Probably the volatility will harm your account, even to buy in the right direction you must execute and manage the trade correctly. Please see this interesting blog post about trade execution.
- If you are well prepared - This means studying different scenarios of past releases, and trading only the events with significant market reaction (not the ones considered to be the most important events). Then you could be very successful. You can harness the expected volatility and the recurrence of economic events to your favor.
With the right preparation and methodology, a system of trading rules, and the right tools, economic events are a good opportunity.
Takeaway
Trade only the events with significant market reaction, not the most important events. GDP is an event with a high priority, but it does not mean that the market will react with significance to this event. If that is the case, we as traders should avoid trading it, even though it’s considered to be an important event. We need to trade where we have an edge, not just volatility.
