Trade the non-farm payroll report NFP to capitalize on one of the biggest forex market moving events of the month. Here are a number of ways to trade it. On the first Friday of each month, at 8: The report reveals the US employment situation, shedding light on the strength of the economy.
During volatile times, when overall movement is already quite high, the report can cause moves of pips or more. On a non-farm payroll release day, intraday movement could be much larger. Below I discuss a simple strategy and an advanced strategy.
If we get a valid signal based on the rules , we take it. This is fine, but my personal performance is better with the more advanced strategies discussed later on. That said, the advanced strategies are more subjective and may be harder for some people to implement. Therefore, practice each strategy and utilize the one you trade best with.
A minute chart allows the initial volatility to subside, but still allows us to capture a large potential move once the market participants make a more rational decision about whether they want to buy or sell based on the news. This is the trend this simple non-farm payroll forex strategy attempts to capture…the rational trend which follows the initial price volatility after the news release. Do nothing for the first 15 minutes after the NFP announcement. A wide-ranging price candle will occur between 8: The wide-ranging candle should be 40 pips or greater, assuming average daily volatility is around pips.
If average daily volatility were to expand to pips, we would want to see a wide-ranging candle of at least 60 pips. If the candle following the news event is smaller than this, then it is better not to use this strategy. Never hold a day trade through the data release. We take trades after the NFP report is released, not before. Wait for an inside candle. An inside candle is a minute candle where the high and low are completely inside the prior candle.
Figure 1 shows a wide-ranging candle followed by an inside candle. Depending on volatility and the strength of the initial push, we may need to wait for a couple candles in order for an inside candle to occur. The high and low of the inside candle become our trade triggers. If the price rises above the high of the inside candle, buy.
If the price drops below the low the inside candle, sell. Place a stop loss below the most recent low if you bought, or above the most recent high if you sold.
Your stop should not exceed 30 pips. In figure 2, the initial inside candle that followed the wide-ranging candle is used for the trade trigger. Following the initial inside candle, two more inside candles followed. Here is where a little subjectivity can be used: If the price forms a little range like it did here, you may want to wait for a breakout of the range the original inside candle in this case. That said, trading a breakout above the most recent inside bar the green candle to the left of the arrow , would have resulted in a bit lower entry and a tighter stop loss.
The horizontal blue-dotted line shows the entry, which is set one pip above the inside candle high. The dotted line in the lower part of the screen marks the stop loss order. The stop loss is placed below the recent candle lows because this was a long trade. As soon as the high or low of the inside candle is pierced, take the trade. Exit 4 hours after your entry.
This is a timed exit. Once the trend begins it will often last for about 4 hours. If you enter at 9: While this method worked very well in the past, it seems to not be working as well post Therefore, watch to see if it comes back into favor, but in the meantime I recommend setting a target price at a 2: For example, if your initial risk is 20 pips, set a target at 40 pips from your entry.
Over time, if you notice you can extract more profit from these trades, adjust the target to 3: Targets are very dependent on overall volatility. Overall volatility affects strategies and is something you should monitor. When average daily volatility is around pips, if your stop loss is 20 pips, you will likely be able to attain 40 to 60 pips on a winning trade 2: If daily volatility is up around pips you may be able to extract 60 to 80 pips 3: If you get stopped out on 2 trades, the movement is too choppy.
Stash the strategy away until the next month. This step is optional. Implement a trailing stop loss to avoid giving up your profit if the trend reverses while holding the position. As the trend progresses, move the stop loss to just below recent swing lows if you are long, or just below recent highs if you are short. You could also use a moving average or some other indicator as a trailing stop loss. In a rare event, the data was released on a Tuesday due to the US government shutdown on the Friday the data was supposed to be released.
The trade produced about a 54 pip profit at the 4-hour time target. Original risk was 25 pips, but could have been trailed up, locking in a profit after the first consolidation. Sometimes wins will much bigger and other times slightly smaller. Below is another example from Oct. The timed exit produced a profit of 24 pips. The pitfall of this simple strategy is that it can experience strings of losses. The worst days are when 2 false signals occur back to back in the same day.
This why the reward: It assures that we are making at least twice the amount on winning trades that we lose on losing trades. One winner makes up for two or three losers depending on the reward: This advanced forex strategy combines multiple concepts of price action trading, and utilizes them when the market is most volatile…like after a NFP data release. Use the same concepts to improve your trading at any time.
With the advanced strategy, the overall price action following the release tells us which direction we are going to trade. This strategy is more subjective than the simple strategy discussed above. For the advanced strategy a 1-minute chart is used instead of a minute chart. Using a 1-minute chart means we may end up entering and exiting multiple trades within the hour or two following the NFP release. Multiple trades, all with 2: We may be taking a long trade one minute, and then a short trade a few minutes later.
Our overall goal is to trade in the direction of the dominant trend. This is usually pretty easy to spot. The tricky part is getting into that trend at a good time, and also being able to tell when the price is reversing or just pulling back. There are multiple stages to this strategy. Please read to the end of article before attempting to implement any single element.
If the price moves up 30 pips or more, we will be watching for long trades. If the price drops by 30 pips or more, we will start watching for short trades. The price just had a big move either up or down. We now wait for a signal to enter a trade in the same direction as that initial move.
From the high or low of the big move, the price must pullback or stay below high or above the low for at least 5 bars.
Basically, we want the price to retrace some of the big move. Draw a trendline along the candle highs of this pullback if the initial move was up, or draw a trendline along the candle lows of the pullback if the initial move was down. Basically, we are waiting for a strong move in the trending direction that indicates the pullback is over and the price is likely to start moving in the same direction as the initial move.
Therefore the price could make a triangle or a small range then breakout of it, or form a small angled channel and then breakout of it. We are waiting for some type of breakout trigger that indicates the pullback is over. If the initial wave was up, buy when the price breaks above the trendline or makes a strong move up out of the pullback. If the initial wave was down, short when the price breaks below the trendline or makes a strong move down from the pullback.
Place a stop loss one pip below the most recent low if long, or one pip above plus the spread the most recent high if going short. Place a target equal to half the distance of the initial move. In figure 6 the initial move was pips up before the price formed the pullback. Therefore, once we get a buy signal a target is placed 57 pips above the entry half of , rounded down.
Alternatively, place a target at a 3: This usually works out to about the same price target. As the image shows, the risk on this trade wasMore...