It should not come as a surprise that many various factors contribute to the way Forex market behaves. The complete picture of the market consists of data from the past events, current economic and political situations in different regions, time of the year and sometimes even the specific time of the day. Obviously, it is nearly impossible to track all of the mentioned above at the same time and get a comprehensive action plan. That is why every professional trader focuses on one or several specific trading strategies. A trading strategy includes instructions for different ways to approach analysis, planning and trading itself. And based on the strategy you are using, you will need different tools and indicators to support its efficiency. One of the commonly used indicators is called NFP, and today we are going to briefly discuss what is NFP in Forex trading and what are the specifics of using it as a part of your trading strategy.
To get the best understanding of what is NFP Forex you first need to know what NFP stands for. NFP is an abbreviation for Non-Farm Payroll, and it indicates the amount of jobs that were gained in the USA during the previous month in the fields other than farming. It gets released on the first Friday of each month and can cause quite the reaction in the market. The NFP indicator consists of various measures including participation rate, average hourly earnings and the rate of unemployment. Despite this indicator being specific to the United States economy, it is largely recognised as one of the primary drivers of the market. The reason for this is very simple - the US dollar is the most popular currency that is being globally traded as a part of many currency pairs. Therefore, NFP is closely watched by traders and brokers across the globe, who use it to predict the next moves of the market and place their tardes accordingly.
Just like in many other scenarios, it is hard to tell how the market will react to the next NFP update. However, there is a way to get a general idea of how it will play out. This is based on the consensus expectation for NFP that gets generated by a group of professional analysts. In cases when the consensus results are not very different from the actual released data, the market usually does not have a strong reaction, as the indicated number has been anticipated. On the contrary, when NFP takes an unexpected turn - the outcome can get dramatic.
There are two ways to trade using the Non-Farm Payroll indicator. The main difference between the two is when the trade is placed. Based on this a trader takes different approach:
- Trade is placed before the NFP release. When the trader uses a predictive strategy and places the order before the number gets released, the main focus is on the ability for deductive thinking that will help to forecast the market’s behaviour. Crucial aspect of this strategy is risk management, which will prevent you from major losses in case your predictions did not play out. The best techniques for managing your risk is placement of Stop Loss limitations.
- Trading after the release. Although this strategy is a little more practical, it also comes with a certain amount of risk. The important thing in this case, is not to use the initial reaction of the market as a guideline for the day. Best solution is to spread your trades and watch the market closely, as it has taken a rather radical turn more than once during the previous releases of the NFP.
As you get a full understanding of what is Non Farm Payroll Forex you might start considering using it as your primary strategy. Just as with any other indicator, the key to successful implementation of NFP strategy is knowledge. No matter how experienced you think you are, there is always room for improvement. That means that the main task of a trader is not trading itself, but the process prior to that, which includes considering many different factors and predicting all possible outcomes.
