Today I want to share with you interesting information that can bring you profit.
Let’s talk about NFP
What are non-farm payrolls?
Non-Farm Payrolls (NFP) is the number of new jobs in the non-farm sectors of the economy during the last month.
The published figures show the dynamics of the changes (increase, decrease) in relation to the previous period.
These statistics cover around 500 sectors of the economy: construction, commerce, business services, transport, logistics, financial sector, medicine, tourism, etc. The calculations do not take into account workers in the agricultural sector, non-profit organizations and self-employed citizens.
A change in the value of NFPs of 100-200 thousand jobs will lead to sharp volatility in the quotes of world currencies in pairs with the US dollar, the and stock markets.
The long-term reaction to growth in non-farm activities is the weakening of the US dollar against a basket of major Forex currencies;
The short-term reaction is unpredictable due to a sharp jump in the rate, which causes the activation of many pending orders and an unpredictable exit and injection of large amounts of money into the markets in a short period of time.
An example of looking for a trade setup would be using 30 pips. It is not unusual for the pair EUR/USD advance 30 pips in the first minutes of the publication of the report. The larger the initial move, the better to determine the direction of the pair’s movement.
After the initial big move, there is usually a price pullback indicating an entry point. Using one-minute price bars, traders draw a trend line from the high of the initial move to the high of the one-minute price retracement (if the initial move was up). They buy when the price breaks above the trend line.
If the initial move was down, then a trend line is drawn from the low of the initial move to the low of the price retracement using the same criteria. Traders enter a short trade when the price breaks below the trend line.
Some traders like to wait 5 price bars before drawing a trendline, while others may have experience telling them that less or more is better. It is also useful to place a stop loss in case the chosen price bar is not the retracement low of the actual price.
If a trader is using the 5 price bar method, then a stop loss should be placed one pip below the low of that move if a long trade is made. If a short trade was entered, then the stop loss should be placed one pip (plus the size of the spread) above the high formed on the 5-bar price move.
To determine an exit position or profit target, traders use the difference between the opening price and the initial move. The difference is divided in half. The target price is this number. For example, if the initial move was 115 pips, then the profit target would be 57.5 pips.
Only enter a trade if your profit potential is at least 1.5 times your trading risk. Ideally it should be 2x or more. In the examples above, the profit potential is about 3 times the trading risk.
Don’t forget about risk control. Do not risk more than 1% of your capital.
Practice before using the method
It is impossible to describe how to trade all the possible variations of the strategy that may arise. That is why it is recommended to use the strategy in a demo version before making real trades. Understand the principles and the reasons why they exist, so that if conditions are slightly different on a given day, you can adapt and not be bombarded with questions.
If a profit target seems too bold, use a 3:1 reward/risk ratio target. The goal is to place the target in a logical and reasonable place based on the trend and volatility. The profit target method helps with this, but it is only a guide and may need to be adjusted slightly depending on the day’s conditions.
EUR/USD it won’t behave exactly the same after every NFP report, so it will take some practice to see how these trade setups play out and be quick enough to jump in and trade them. Practice the strategy on a demo account until it shows a full profit after trading with at least five NFP reports. Only then can you consider trading this strategy with real money.
News trading is not easy.
During such a period, the price moves rapidly.
It pays to gain enough experience to confidently trade the news, so practicing on a demo account is recommended.
Control the risks, follow the strategy and the profit will come to you.