How to Trade Non-Farm Payroll

The Non-Farm Payroll report (NFP) describes the current employment situation in the United States. A number of different statistics are available in the data release, and not just the NFP (which is the change in the number of employees in the country, not including farm, government, private households, proprietors, and non-profit employees).

Currency pairs experience large price fluctuations shortly after data is released, particularly if they involve the US dollar. This creates a favorable environment for skilled day traders, who have good trading strategies, to profit from volatility.

Trading volume for the EURUSD is the highest in the world. While it tends to have small spreads, it offers good liquidity and plenty of price movement for making a trade.  Because its prices fluctuate significantly, this currency pair offers opportunities to profit, and you don’t have to worry about the impact on other currency pairs.

The NFP is used by forex investors to determine which currency to invest in based on the jobs data contained in the report. Day traders, on the other hand, prefer to wait for other investors to initiate trades.

Approaches to trading NFP

Before report release

If you enter a position before the NFP data is released, you are employing your inferential reasoning skills to anticipate which direction the market will take. Since market gaps can theoretically exceed risk-minimizing stops, risk management is crucial when employing this strategy. 

As a result, it is wise to give whatever instrument you choose to trade a wide range of movement and oscillation in order to give yourself the best chance of success. The majority of central banks around the world prefer inflation to grow at a rate of approximately 2 percent to 3 percent on an annual basis.

Following the release

Trading, once the product has been launched, poses a greater risk, but it does also offer a set of interesting opportunities. This isn’t always the “end-all, be-all” of market movement for the day, with regard to the NFP story. It is well known that markets can resemble a V-shape following the release of the NFP, with the spike going in one direction and then reversing in the minutes or hours following the release.

NFP trading strategies

NFP forex trading strategies are a good fit for traders who are more experienced in the market. This is due to the fact that the NFP report will bring with it increased volatility. Furthermore, we see an increase in illiquidity in the lead-up, which increases the risk and volatility.

Thus, as a rule of thumb, it is strongly recommended that you refrain from trading prior to the release date.

The most effective strategy for trading the NFP report is to use a combination of technical analysis and fundamentals.

• First and foremost, consider the projections made by analysts. If the final number exceeds expectations by a significant margin, it could be a sign that the economy is outperforming expectations. This could be a sign that the Federal Reserve will raise interest rates, which would be detrimental to the stock market.
• Also, always examine the technical characteristics of the asset. For example, you should locate the levels of support and resistance beforehand so that you can plan ahead with regards to when you’ll get your data. When the data is released, this will assist you in identifying key levels.
• Thirdly, you should have a clear vision of your goal. This means that you should always take into consideration the Federal Reserve’s recent statements as well as other relevant data such as inflation and retail sales.
• Finally, when trading NFP data, you should use limit orders. Buy and sell stops and buy and sell limits are included in these orders. They will assist in reducing the risks associated with using market orders, such as price slippages.

1. The NFP Report: Trading ahead

A step-by-step guide to day trading the NFP using only the charts can be found here:

1. Fifteen minutes before the NFP release, find the last four-hour trading range high and low.
2.  Place your limit buy order above the range’s high and a limit sell order below the range’s low.
3. Place protective stop-loss orders on the opposite side of the range.
4. Wait until your order has been triggered by the NFP.
5. Keep the other pending order in mind, and then cancel it once you’ve got an open position.
6. Using a price target equal to the trading range identified in step 1 will ensure the appropriate take profit distance.

2. NFP fading the markets

In forex trading, the initial release reaction and NFP fading can be likened to trading against the grain. With this NFP strategy, we hope to be able to take advantage of the initial spike and trade what happens afterward.

The effective implementation of this NFP trading strategy happens because people often react in a knee-jerk manner when they see a large initial NFP movement.

When the NFP knee-jerk feels this way, this is how you should interpret it:

According to the actual release, traders will act over-enthusiastically, making frequent and dramatic changes to their trading positions, resulting in increased trading activity. Eventually, though, the markets will calm down when the NFP statistics are announced, and traders will reevaluate their positions, either taking profits or cutting losses. As a result, we will have created a short-term trading opportunity by riding a short-term retracement.

In conclusion

The Non-Farm Payrolls (NFP) report is a key market fundamental that provides forex traders with the momentum they need to open profitable positions. Combining NFP with other relevant fundamentals and appropriate technical analysis tools helps to reduce risk exposure and improves the reliability of NFP.