NFP report is one of the most powerful drivers of the Forex machine. Traders across the globe have their own ways of benefiting from its release. Today we learn what is NFP trading and how to trade NFP report successfully.
What is NFP Trading
NFP is an abbreviation for non-farm payroll. It represents a summary of data that plays a key role in the US economy. As partially obvious from the name, NFP includes information on various employment related factors in every field except for farming.
Employment rates in general are one of the primary indicators of economic health. And since American dollar is the center figure at the foreign exchange market, all that affects it is crucial to currency traders everywhere.
NFP reports in particular look at factors like the amount of jobs added and subtracted from the economy. This is already a good chunk of info, but not quite enough for a comprehensive NFP forex trading strategy.
Other aspects of the report that have major significance are: percentage of unemployment towards the overall workforce, particular sectors that contribute to both increase and decrease, average hourly earnings and comparison with previous reports.
All the above can give traders a solid understanding of where American economy is at the moment and where it is most likely to go next. With that said, it is important to mention that just as trading on any other latest news on Forex trends, NFP reports successful reading and implementation comes from practice and experience.
Next, we are going to discuss the frequency of NFP releases and how a trader can prepare for them.
How Often is NFP Released
Non-farm payroll calendar is very straightforward on its own: data is released on every third Friday after the conclusion of the reference week, which is the one that has the 12th of the month in it. More often than not it is the first Friday of the month.
Since the date is always known, one of the ways of how to trade NFP today is first look at the most recent report and see if there is any data you can still use. Alternatively you can use one or several past reports to get a better understanding of the mechanics and prepare yourself for the next upcoming report.
Trading non-farm payroll profitably is more than possible, as long as you get a proper grasp of the way it affects the market. It is not the data itself, but the reaction it causes that creates the wave of activity among traders.
That’s why you need to start getting ready for the non-farm payroll trading at least one week ahead of the actual release. In fact, a lot of traders take a predictive approach and open their positions prior to knowing the exact numbers.
But before we get into any technicalities of how to trade non-farm payroll news release, let’s first establish where we get the data to begin with.
How to Trade NFP Successfully
A large portion of how to trade non-farm payroll is choosing a place where to find NFP data for trading Forex. Luckily, this issue has already been solved for you by your broker. All you have to do is learn how to implement the information in your trading.
The very first solution to where to find NFP data for trading Forex is an economic calendar, an interactive tool presented at the broker's website. There you can see when the next NFP release is going to take place as well as to check what are the market expectations towards it and how did it affect the market scene in the previous past few months.
Economic calendar is a great basis for your fundamental analysis. Plus, the more you trade using NFP in particular, the better you will get in anticipating the info summary.
Another way to trade non-farm payroll is by closely watching the fundamental updates provided by your broker or other major analysts. This way you will get a chance to study professional insight on the situation and ride the wave as it develops, not before it formed.
This brings us to the final section: tips on trading the non-farm payroll, where we are going to talk about major contributing factors to trading NFP successfully.
Helpful Tips on Trading the Non-farm Payroll
The very first question you are going to ask yourself is: how to predict NFP direction? And there are actually several available answers. The most common one is to combine fundamental analysis with the technical one and judge the significance of the report’s effect in the last couple of months.
Economy of any country is a complex mechanism, which takes a long time to both crush and recover. This means that previous month’s data is going to be highly relevant to what is going to happen next. Unless there are any additional major events that could’ve caused a large shift in the economy.
In these cases traders have to look at news outside the economy. International politics, for example, can play large roles in certain government's employment. Same goes for widespread crises, such as a virus epidemic or natural disasters.
Once again, a trader will study what is happening in the world and try to find the most similar example of the current events in the past. In most cases, the market tends to repeat its own patterns and the information from previous scenarios can give us a very good idea of how things might play out.
Then again, sometimes the situation unravels in a whole new way due to specifics of the particular event and market’s sentiment towards it. In such cases traders have to use their own judgement and do everything in their power to minimize risks.
Risk management is crucial to any trading approach. We know well that gaining any sort of profit on Forex is impossible without risking, but we all have to risk wisely. We also know that NFP trading is always associated with high volatility due to the amount of traders who base their decision-making on the report.
Volatile markets are not for the faint-hearted: they move fast and often random enough to make even the experienced traders question themselves. That’s why it is important to have a reliable non-farm payroll forex trading strategy up your sleeve and make sure to follow it religiously.
Strategic approach is beneficial on multiple levels. First, you always know what you will do and have a general understanding of what the outcome may be. Then you also plan ahead and establish several possible options for both entering and exiting the trade, which can help maintain your emotions and keep thinking clearly.
Plus, you always have all the necessary information and tools handy, ready to be executed whenever needed. Back this up with some knowledge of the market, keep practicing trading fundamental news in general and NFP reports in particular — and you are all set to become a successful currency trader!
