Non-farm payroll and forex

Non-Farm Payrolls (NFP) releases create volatility in the forex market. · NFP measures net changes in employment jobs. · Forex traders use an.
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There is little reason to day trade another pair during the NFP report. Close all prior day trading positions at least 10 minutes prior to AM ET when the data is scheduled to be released. When that occurs the price will see a big rise or decline which typically lasts for a few minutes sometimes more. During that initial move we do nothing, we just wait.


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Just after AM ET the price will rise or fall rapidly, typically at least 30 pips or more within a couple of minutes. The bigger this initial move the better for day trading purposes. The initial move gives us the trade direction long or short for our first trade. If the price moves more than 30 pips higher, we will want to go long If the price drops more than 30 pips, in the few minutes after the AM release, then we will be looking to go short for our first trade In figure 1 click for larger version the price moves aggressively higher in the few minutes after AM.

That means we will be looking to buy when a trade setup occurs. Therefore, is when the news was released on the attached charts. The initial rise or fall in the moments after AM lets us know in which direction we will be trading. The next step is to wait for a trade setup. A trade setup is a sequence of events that must unfold in order for us to get into a trade. Since there is often a lot of volatility surrounding the news, we will look at a few variations of the setup, as no two days are ever exactly alike.

Here is what we are waiting for:. This is the simplest form of the strategy and is useful in most situations. Unfortunately, it is quite general, so occasionally the pullback may not provide a trendline that is useful for signaling an entry. In such cases, the alternative entry discussed in the next section may be helpful. Figure 2 click for larger version shows the strategy at work. The initial move was up, so we want a long trade. There is a pullback that lasts at least 5 bars, and the trendline is drawn along the price bar highs that compose the pullback. The price then breaks above the trendline signaling a buy.

A stop-loss is placed one pip below the low of the pullback that just formed. After the initial move, if the price pulls back more than half of the distance of the initial move before breaking the pullback trend line and signaling an entry then this alternative method can be used. Figure 3 click for larger image shows an example of this strategy.

The price rallies so we are looking for a long trade. The price pulls back and consolidates, but then it drops instead of rallying above the consolidation. In this case, there is no trade, because the price does not move above the high of the high of consolidation. As long as the price stays above where the initial move began we can continue to look for long trades. In figure 3 the price doesn't stay above where the initial move began. This sets up another alternative trade. If the price moves at least 15 pips past where the initial move began, we can look for a trade in this new direction, following a pullback.


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In figure 3 the price initially rallies but then collapses and moves more than 15 pips below where the initial move started. This big drop means we are now looking for short trades. The price target has also been included in figure 3. How to establish the price target is discussed next. Because of the volatility surrounding the news announcement, how far the price moves from the price can vary dramatically from one NFP day to the next.

US jobs report pre-release checklist – Apr 2nd, 2021

Sometimes it only moves 50 pips within a couple hours, other times it moves pips or more in an hour or two. Since we are waiting for a pullback before taking a trade, once that pullback starts to occur, measure the distance between the price and the high or low of the initial move if the price starts jumping at in the same direction, include that. This should be at least 30 pips or more. Now, cut that number in half. For example, if the price moved 43 pips in the initial move, cut that in half and you are left with That latter number is how many pips away you will place your target an offsetting order to exit the trade at a profit from your entry price.

Figure 4 click to see larger version shows one of the same trades we looked at prior. In this case, the size of the initial move is pips. Cut in half, our "profit target" is Figure 3 also shows an example of the profit target method. In that case, the initial move was 56 pips, so cut in half, you are placing a profit target 28 pips away from the entry. Before any trade occurs you know your entry price Note that since trendlines are sloping the breakout price will change every bar.

You also know your profit target because the initial move has already happened. The difference between your stop loss and entry is your 'trade risk' in pips. The difference between your profit target and the entry point is your 'profit potential' in pips. Only take a trade if your profit potential is at least 1. Ideally, it should be 2x or more. In the examples above the profit potential is about 3x the trade risk. Position size is also very important.

NFP and Forex: What is NFP and How to Trade It?

If the trade risk is 20 pips, then your position size should be no larger than 2. The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the directional movement it will cause.

With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings. Like any other piece of economic data, there are three ways to analyze the U. Trading news releases can be very profitable, but it is not for the faint of the heart.

NFP and Forex: What is NFP and How to Trade It?

This is because speculating on the direction of a given currency pair upon the release can be very dangerous. Fortunately, it is possible to wait for the wild rate swings to subside. Then traders can attempt to capitalize on the real market move after the speculators have been wiped out or have taken profits or losses.

The purpose of this is to attempt to capture rational movement after the announcement, instead of the irrational volatility pervading the first few minutes after an announcement. The release of the NFP generally occurs on the first Friday of every month at a. As with all aspects of trading, whether we make money on it is not assured.

Approaching the trade from a logical standpoint, based on how the market is reacting, can provide us with more consistent results than simply anticipating the directional movement the event will cause.

Why is the NFP so important in Forex?

Because the forex market is open 24 hours a day, all traders have the ability to trade the news event. The logic behind the strategy is to wait for the market to digest the information's significance. After the initial swings have occurred, and after market participants have had a bit of time to reflect on what the number means, they will enter a trade in the direction of the dominating momentum. They wait for a signal indicating the market may have chosen a direction to take rates. This avoids getting in too early and decreases the probability of being whipsawed out of the market before it has chosen a direction.

The strategy can be traded off of five- or minute charts. For the rules and examples below, a minute chart will be used, although the same rules apply to a five-minute chart. Signals may appear in different timeframes, so stick with one or the other. Looking at the chart above, the vertical line marks the a. EST p. As you can see from the chart, there are three bars, or 45 minutes, of back-and-forth action following the release.

Which currency pairs are most affected by NFP

During this time, traders do not trade until they see an inside bar. The inside bar has a square around it on the chart. This bar's price range is fully contained by the previous bar. Traders will enter when a bar closes higher or lower than the inside bar. The next bar's close is circled, as that is their entry; it closed above the inside bar's high. Their stop is 30 pips below the entry price , which is marked by a solid black horizontal bar. Because their entry occurred at approximately at a. GMT , they will close out their position four hours later. By entering the trade at 1.