Trading on the news, namely on the release of the United States Labor Market Indicators (Non-Farm), has some features that a trader can use to make a profit. The distinctive feature of the labor market news release is the almost 100% reaction of the market players, so the price gets a rather strong impulse, which can be used to gain profit.
The Non-Farm Payrolls (NFP) indicator shows the number of new jobs that have been created in non-agricultural (Non-Farm) economic sectors in a month. Non-Farm Payrolls is a payroll that shows the number of jobs that workers are paid. The indicator is very important for the market (economy) and shows how much employment has changed in the country.
NFP, also called Non-Farm Employment Change, is released on the first Friday of the month at 08.30 EST (New York) or 13.30 GMT. The indicator is lagging, as it reflects statistics for the previous month.
If the NFP rose from the previous value, it means that the employment rate has increased, which has a positive impact on the US economy and strengthens the USD. Conversely, a decrease of the NFP is seen as an increase in the unemployment rate, which is negative for the US economy.
Empirically, it is believed that the growth of this indicator by 200,000 jobs per month is similar to the growth of the country's GDP by 3.0%. The minimum trading signal is a shift by 40,000 jobs. Large changes in NFP (from 100,000 and above) can cause strong market movements. Therefore, NFP is the indicator that moves the markets.
It is difficult enough to give a forecast about a specific figure of NFP data, as well as to predict the market reaction. Consequently, traders use a little trick to catch a strong price movement and take their profits. To do this, just before the news release, 2 pending orders should be placed - Sell Stop and Buy Stop.
It is well-known that the market can stay in two states before the release of important news: "flat", i.e. minimal movements in a pair of points, or "swinging". If a trader sees a "spike" before the NFP release, it is better to refrain from trading, as there is a high probability that any of the orders will trigger and then roll back to the opposite side, which can lead to losses. Pending orders are placed only in conditions of pre-news "flat".
Usually, on the day of Non-farm Payrolls publication, very few traders enter the trading process before the news release. During this period, the Forex market often makes false breakthroughs of levels, or trades in a fairly narrow (30-50 points) range, whose direction is very difficult to determine.
If there are any open trading positions before the NFP release, it is better to close them, because even if you set the safety Stop Loss closer to the price and the market opens against you with a gap, you risk that your order will be closed not at the Stop Loss price, but at the market price at the moment of news release (at the price of opening a gap).
2 - 3 minutes before the NFP indicator publication it is necessary to place orders. Usually in these 2 - 3 minutes the price stops. As NFP is difficult to predict, and the Forex market reaction to the published indicator is unpredictable, so it is necessary to place pending orders for a breakthrough in 2 opposite directions with a 20-point margin (Buy Stop and Sell Stop).
After the NFP data is published, the Forex market price will "burst" very sharply either up or down. At Take Profit of 30-40 points, one of the positions triggers and closes with profit. The safety Stop Loss is set at a distance of 20 points, and it is necessary to set it before the placing of orders, because after - you may not have time to do it, or may accidentally lose the Internet connection. Trailing Stop is ideal for this purpose (trailing stop gives the order to move the Stop Loss much faster than the person). The movement at this time is very fast. Therefore, after the triggering of one of the orders, the second one should be immediately deleted.
The recommended currency pair is USD/JPY.
Timeframe M1, M5.
When working with this strategy it is IMPORTANT to test it on a demo account, to study previous reactions to the publication of NFP.
Trading after NFP release.
After publishing the news, we have earned our 30-40 points. Now we should take our time and wait for the next market reaction to the news.
With NFP higher than the previous one, the US dollar is strengthening. Accordingly, it will be reflected in the charts. For example:
- With the general uptrend, EUR/USD will be dominated by the downtrend for some time. In this situation, it is possible to place a Sell order. When reaching +20 points, move the Stop Loss to a break-even zone. Most often, at such moments the price makes long jerks and goes back. Therefore, the use of a trailing stop will be most appropriate for getting profits.
- With a general downtrend, the movement will increase and will continue to decline. Here are the possible options to take profits of 70 - 90 points (you can check for yourself on the history, the price goes more than 100 points), and due to strong return movements the stop is triggered at a distance of about 70 - 90 points. After that, it is recommended not to enter the market.
If the NFP is lower than the previous one, the US dollar weakens:
- With an upward trend, the price will go up by about 100 pips.
- In case of a downtrend, the price will make a leap in the opposite direction, but soon it will return to the previous trend.
Trading on the news is a highly risky activity, which can bring both quick profits and losses. Therefore, it is up to everyone to decide whether or not to trade the news. We believe that it is possible to trade the news, and in the case of Non-Farm Payrolls is the most suitable option is short-term trading during the current day, as then there is a weekend (rebate, all) and by Monday the market situation may change dramatically.
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