The importance of a trading calendar is often overlooked by those actively in the market. The key to successful trading is being organised and layering multiple tools and skills on top of each other and a comprehensive trading calendar and knowing what is coming is an integral part of that. Tune in this week on why trading calendars are so important and how to set one up:
Broad Market Focuses
In uncertain market periods, investors look to the release of economic data to gauge where the market is at, and where it might be headed. Major data points can have major impacts on the market and quite often it is the risk you were not aware of that is the biggest. Host Andrew Baxter notes that there are some key ones you should be on the lookout for, particularly now when economic conditions are the main focus. Consumer Price Index and Producer Price Index come to mind, along with employment data and housing starts. Standalone, these fragments of data do not provide all the answers. But by combining them all we can try to deduce where we think the market might be going and position ourselves around that.
Adding these dates to your trading calendar will ensure you are not taken by surprise. When these key data figures could heavily impact your portfolio. Thankfully, release dates are generally advertised, giving you ample opportunity to make sure those key dates are in your calendar.
Positioning Yourself in the Lead Up
Depending on what sort of investor or trader you want to be, there are different ways to position yourself ahead of these major announcements. If you’re in the stock space, Host Andrew Baxter suggests closely watching for any inflation data such as CPI, PPI or other official inflation figures. We have seen inflation wreaking havoc with the cost of living as well as in the stock market. Without specifically targeting stocks, you can take advantage by trading on the volatility. Or on what you may think occur within the bond market. When we see pressures in the economy for central banks to increase interest rates. We will generally see bond prices come down and thus bond yields move higher.
There is a US security with the code TBT which tracks the movement of bond yields in the market. And you can use this as a way of trading on these major news events without necessarily exposing yourself to individual stocks. Likewise, you can trade volatility by way of VIXY or UVXY in predicting whether the market will become more or less volatile. Higher volatility also gives us a chance for improved cash for options in the market. Which is another thing we can use to our advantage. Hedging is another method we can use to protect ourselves against any major news events that may impact our positions. Either using options or simply entering into an ETF that is short on the overall market could be effective as a means of protecting ourselves should we see some downside in the market.
Stock Specific Announcements
There are a number of announcements that are released throughout the year on specific stocks. Sometimes we might wake up and see that our stock was down 10%. And start to panic but in reality it has just gone ex-dividend. Host Andrew Baxter explains the really major one to be aware of is the earnings dates. Earnings reports can introduce some chaos into the market because investors simply do not know how a company has performed until it has been released, and market reactions can be quite extreme. Key dates such as these are publicised in advance but can every now and then change at the last minute.
It is important to be on top of when these dates are and to have them in our calendar. So we do not get stuck with a stock we don’t want through earnings. Of course, there are some surprise announcements every now and then which can have a large impact on a stock but it’s key to plan around the information we do have. When a company makes a surprise announcement, the uncertainty can create volatility and may not be predictable. These sorts of things will happen, but unfortunately there’s not a lot we can do to plan for those.
Seasonal data shows us how certain stocks or indexes have performed over a given period. Host Andrew Baxter notes that September, for example, is the statistically weakest month for the major indices in the US. Seasonals are not always great standalone because circumstances can change. But it is a handy tool to add into our trading calendar. We can make note of when it is typically strong for a security. Or when we may want to avoid putting our money there. Making note of these periods is helpful for us when also considering the economic climate as well as other key dates approaching in our calendars.
Heading into the European winter, for example, we have seasonal demand for more natural gas and oil for heating. By layering these forms of analysis up, you are giving yourself a great opportunity to trade effectively. You can do this with a simple calendar and writing in these key dates which might be tedious. But you will thank yourself in the future!