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Trade The Non-Farm Payroll (NFP)
by admin ·
The non-farm payroll (NFP) is the report of the total U.S. salaried trabajodores excluding agricultural jobs for government workers, workers in nonprofit organizations and private household workers. The NFP, in Spanish something like nonfarm eg employment is a key economic indicator for the U.S..
The publication of NFP causes very large movements in the forex market, the broader movements produced by the publication of news. That is why many analysts, investors, speculators and investment funds try to anticipate the outcome of the NFP and the movement caused. Due to this great expectation for the publication of this economic indicator , the market may react with large movements even when there is deviation between the prognosis and outcome of the NFP.
In this article we will discuss some aspects of the trading of this economic indicator with special care not to suffer too much with the high volatility that may cause the release of the NFP.
The publication of the NFP
The NFP is published, unless exceptional circumstances, the first Friday of each month at 8:30 am ET U.S. (14:30 Spanish time). It is published by the Bureau of Labor Statistics of the Department of Labor United States . The non-farm payroll is published for the previous month, for example, the NFP published Friday August 6, 2010 contained the nonfarm employment data for the month of Julio’10.
The publication of this news creates a favorable environment for active traders as it is almost 100% sure that the market will have a usable movement after the publication of the report.
Trading strategy for the NFP
The publication of the NFP affects all the major pairs but the best to operate at that time are, from my point of view, the pair EUR / USD and GBP / USD . Any trader can operate the NFP due to one of the characteristics of the forex market : market continued 24 hours.
Try to take advantage of the significance of the number of NFP after entering the initial chaotic movements. At the time of publication of the NFP are typically caused intense movements of high volatility, when market participants understand the significance of the result of the NFP, the movements are stabilized and there is a small consolation after which the market will choose a direction direction in which we enter. The consolidation period will be marked by a candle inside and will signal the breaking of the inner candle. In other words, let’s wait for a signal that the market has taken a direction because of the NFP and enter dominant direction of momentum, this will prevent too early into decreasing the likelihood that our operation is closed in negative as high volatility of the market after the publication of the NFP.
The rules:
This strategy can be followed on 15 minutes charts. The rules are simple and are as follows:
- Do not enter the candle produced just after the publication of the NFP.
- After the first candle, we hope to form a candle inside. Remember: a candle inside is one whose maximum is less than the maximum of the previous candlestick, whose minimum is higher than the minimum of the previous candle, or a candle inside is “inside” the candle predecessor.
- We hope to break a candle inside the candle: When a candle close above the high of the candle go into domestic long. If a candle closes below the low of the candle will short internally.
- We put a Stoploss about 30 pips.
- If the signal we can hardly just taken another operation in the same direction or opposite direction depending on the new signal generated on the inner candle. Never take more than two operations if both end up in negative.
- We closed the operation four hours after our entry. Alternatively you can use a trailing stop and stay inside until the transaction is closed by the Stoploss.
Here are some examples:
Example 1: GBP / USD, the month of Julio’10 NFP, published on August 6, 2010.
Look at the picture above. Point number one is the candle produced just after the publication of the NFP, we are M15 graphics making it the sail of 8:30 to 8:45 EST. According to the rules of the strategy described in this candle will never do anything. The candle marked by the number 2 represents the first international sailing after the publication of NFP. The candle is marked with the number three closes above the high of the candle inside (2) giving the signal for entry into long in the opening of the next candle. We closed on the candle marked with the number 4, 4 hours after open surgery, with 31 pips of profit.
Example 3: GBP / USD, NFP’s of Junio’10, published on July 2, 2010.
This time the market was very volatile and indecisive at the news of NFP. Our operation went wrong stop. Consider the steps taken under the rules described above. The candle with the number 1 is the first candle after the publication of NFP, you can see the indecision of the market and high volatility is reflected in this candle with long shadows on both sides and small body . The candle is a candle number two valid internal. 3 The candle closes below the minimum of the candle inside (2) providing the input signal for sale. We put our Stoploss to 30 pips at 1.5208. In Section 4 our Stoploss is reached and the transaction closes with -30 pips.
Example 2: GBP / USD, the month of Mayo’10 NFP, published on June 4, 2010.
In the picture above we see that the candle marked No. 1 is a candle inside, but it is the first candle after the publication of NFP and, according to the rules described, not doing anything in this candle. The candle with the number 2 is the first international sailing valid after publication of the NFP. 3 The candle closes below the low of the candle inside giving the signal to go short. We closed with 94 pips of profit in the candle marked with the number 4, four hours after the opening of the sale.
As you can see from the examples, is an easy strategy to follow and that can be profitable but, like any trading strategy, operations will have to end in negative. Keep in mind that we are talking about a news trader high impact on the market, which is why it is very important to have the order of Stoploss as we can see in the midst of high volatility and the market may go against our operation at an amazing speed, even when they followed the rules of the strategy accurately. Another aspect that weakens the strategy that, at times, the domestic candle that gives us the signal may appear when the motion caused by the NFP and is exhausted, hence, if the domestic candle appears after a very broad movement should doubt the validity of the sign or take other tools to verify.
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- How to trade on the news
- Adaptive Moving Average by Perry Kaufman – (AMA)
Tags: analysts, economic indicator, investors, market, movements, NFP, Non-Farm, Payroll, trade
