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Non-Farm Payroll Trading Strategies
What is NFP? Non-farm payroll employment of NFP is a summation of payroll jobs available within the non-farm payroll classification (the compiled name for goods, construction, and manufacturing companies in the US) as designated by the Bureau of Labor Statistics. The report features information regarding the number of employees, unemployment rate, and more. The report excludes employees that are government workers and non-profit employees. Currency pairs that involve the USD witness price movements following the release of the non-farm payrolls report. These currency pairs fluctuate after the report is issued on the first Friday of every month.
This report can create colossal volatility in trading the US market and be an exciting opportunity to trade either short term or long term.
Day Trading Non-Farm Payrolls strategy
Day trading on the Forex market requires unique strategies to maintain position and stay successful. The non-farm payroll report is a highly regarded piece of analytical information. The non-farm payrolls report includes information on the most critical aspects of the market. The report is released at 8:30 ET on the first Friday of each month in the year (see following Non-farm payroll dates and time).
How to trade Non-farm payroll news releases?
Step 1: Close all positions 10 minutes before NFP
It is recommended that traders close all positions 10 minutes before the official NFP report release. This is a strategy commonly used amongst advanced and experienced traders. Traders mustn’t be active on the market when data is set to be released. During the initial move, where the price dramatically increases or decreases, traders mustn’t make any moves. There are many reasons why the NFP report holds high significance when trading. Some traders use a one-minute USD and EUR chart. These types of charts can be helpful for new, experienced, and advanced traders alike. The report affects every aspect of the market, so it is highly regarded over Forex trading years.
Step 2: Decide which currency pair you plan to trade during the NFP report.
This is very important to consider for day traders. Day traders that understand the basic principles of Forex trading should take advantage of these times. It is also essential to note that the USD and the EUR currency are regarded as the most frequently traded currency globally. USD and EUR also hold a substantial value in the market. These currencies provide the smallest overall spread and price movements for finalizing trades. Trading another pair other than USD and EUR is not recommended during the release of the NFP report.
EURUSD is not always a good choice. Spread is essential, but the best practice is to pick a weak strong currency. How to do this?
Scenario 1: The market (NFP forecast before release) expects excellent dollars from the NFP report. USD currency should go up.
In this scenario, we need to pick any primary currency such as JPY, CAD, EUR, AUD, NZD, GBP, which is currently very week or strong to combine with USD.
If we have a CAD report simultaneously, we need to make several scenarios in that case.
I use any simple indicator for this. For example, you can use simple indicators that only compare all currency pairs based on daily open prices. Simple_Currency_Strength_Indicator.
For example, USD is strong, EUR is very weak (weaker than JPY, CAD, GBP, etc.). Therefore, I plan to SELL EURUSD.
Scenario 2: The market (NFP forecast before release) expects bad dollars from the NFP report. USD currency should go down.
In this scenario, we need to pick any primary currency such as JPY, CAD, EUR, AUD, NZD, which is currently very week or strong to combine with USD.
For example, USD is weak, CAD is strong (the strongest from JPY, CAD, AUD, NZD, etc.). Therefore, I plan to SELL USDCAD.
Step 3: 5 minutes after NFP release enter into the trade:
When the initial move is more significant after the NFP report’s release, the trades for that day are more meaningful and facilitate better trading conditions. The initial move after the report determines the trade direction. The trade direction can either be long or short. Occasionally the pullback will not always produce a tread line that proves to help signal a specific entry. Alternative entry may be used in the next scene to ensure strategic and adequately evaluated moves.
How to enter? See results from the Non-farm payroll dates report. After news and results, you have 5 minutes to decide what you want to trade.
Scenario 1: The market didn’t react to the NFP report. In that case, I will wait 1 hour to enter the trade, or I will ultimately be flat.
Scenario 2: USD report is excellent for the dollar. Price started to go up. In that case, let us assume that we trade dollar chart:
BUY 5 minutes bullish candle close, stop loss daily low, target open.
Scenario 3: USD report is terrible. The price for the USD dollar started to go down.
SELL 5 minutes bearish candle close, stop loss daily high, target open.
Example:
This year on January 10., there was an NFP report.
The forecast was 160K, and the results were terrible at 145K. At that moment, USD was weak, and the EUR was strong.
Let we buy a closed candle:
Later, the price started to go up several days in a row.
Weekly NFP trading strategy
While the NFP generally moves the market, data like CPI (inflation), Fed funds rates, and GDP growth are essential data releases. So if the USD dollar in the last several days had a good performance, excellent fundamental results, bullish price, and additional NFP report areas the same as previous reports, this could be room for more USD gains. And the opposite.
I like to trade the NFP report every week. So ideas are to wait 1 hour after release and then enter into trade and keep trade overnight next week. Stop loss is Friday low for Buy trade and Friday high for a SELL trade. Then I like to wait for the price to go above Monday high next week to take some profit and stop loss.
Problems in trading Non-farm payroll
The main problem is mixed trade results. Sometimes like in February 2020, we can have this:
As you can see, the employment report is good, and the unemployment report is terrible. Unemployment reports very often have a significant impact on the US dollar. In that case, the trader needs to be careful and smart. The most intelligent decision can often be flat when the NFP report has mixed results.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
