Non-Farm Payroll Trading Strategies
What is NFP? Nonfarm 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 so much 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 huge volatility in trading US market and very often can be an interesting opportunity to enter into trade either short term either long term.
Day Trading Non-Farm Payrolls strategy
Day trading on the Forex market requires unique strategies in order 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 important aspects of the market. The report is released at 8:30 ET on the first Friday of each month in the year (see next NFP report date and time).
Step 1: Close all position 10 minutes before NFP
It is recommended that traders close all positions 10 minutes prior to the official NFP report release. This is a strategy commonly used amongst advanced and experienced traders. It is important that traders are not active on the market when data is set to be released. During the initial move where the price dramatically increases or decreases, it is important that traders do not 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 trader alike. The report affects every aspect of the market which is why it is held in such high regard over the years of Forex trading.
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 principals of Forex trading should take advantage of these times. It is also very important to note that the USD, as well as the EUR currency, is regarded as the most frequently traded currency in the world. USD and EUR also hold a strong value in the market. These currencies provide the smallest overall spread as well as 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 important 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 results for dollar from the NFP report. USD currency should go up.
In this scenario, we need to pick any major 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 at the same time 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 the very week (weaker than JPY, CAD, GBP, etc.). My plan is to SELL EURUSD.
Scenario 2: The market (NFP forecast before release) expects bad results for dollar from the NFP report. USD currency should go down.
In this scenario, we need to pick any major 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.). My plan is to SELL USDCAD.
Step 3: 5 minutes after NFP release enter into the trade:
When the initial move is more significant after the release of the NFP report, the trades for that day are more significant 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 be helpful for signaling a specific entry. Alternative entry may be used in the next scene following this to ensure moves are strategic and properly evaluated.
How to enter? See results from the Non-farm payroll 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 completely be flat.
Scenario 2: USD report is excellent for the dollar. Price started to go up. In that case, let we assume that we trade dollar chart:
BUY 5 minutes bullish candle close, stop loss daily low, target open.
Scenario 3: USD report is bad. The price for the USD dollar started to go down.
SELL 5 minutes bearish candle close, stop loss daily high, target open.
The forecast was 160K and the results were bad 145K. At that moment USD was weak and the EUR was strong.
Later 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 important data releases too. If USD dollar in the last several days had a good performance, nice fundamental results, bullish price, and additional NFP report areas the same as previous reports this can be room for more USD gains. And the opposite.
I like to trade NFP report on a weekly basis. 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 move stop loss.
Problems in trading Nonfarm payroll
The main problem is trade mixed results. Sometimes like in February 2020 we can have this:
As you can see employment report is good and unemployment report is bad. Unemployment report very often have great impact on US dollar. In that case trader need to be carefull and smart. The smartest decision can be very often to be flat.