NonFarm Payrolls – profitable trading on the news
What is NonFarm Payrolls (NFP)? How to make money in trading on Forex news? How to trade using the NFP strategy?
Hello, gentlemen traders! We bring to your attention the strategy of trading on Forex news-on the NFP report. We use unique Forex patterns to trade NFP when everyone else is afraid to enter the market. In this article, you will learn what NFP is in Forex trading, how to trade it, which currency pairs to use, as well as some valuable trading tips and recommendations.
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What is NFP on Forex?
NonFarm Payrolls (NFP) is an economic report that measures the number of new jobs for the reporting month. The NFP data does not include farm workers, private households, government employees, and employees of non-profit organizations. In other words, the NFP indicator is a good indicator of the efficiency of the US economy.
The report on employment outside of agriculture is published by the US Department of Labor. NFP data is usually released at 8: 30 EST (or 13: 30 GMT) on the first Friday of the month.
Why does the NFP strategy work?
Non-Farm Payrolls is the most important economic news release in the world, because it is followed not only by professional Forex traders, but also by stock, futures and leading options traders. The NFP report covers all asset classes, including currencies and stocks.
The USA is the largest and most important market in the world. When the US dollar moves, all other global assets also change. Traders from all over the world are closely watching the NFP figures. Any changes in the opinion of market participants can provoke volatility in the markets. In trading, volatility means more trading opportunities and more profit potentialThat is why the NFP strategy can bring you a big profit when trading once a month.
See also which Forex brokers are the most reliable.
How to trade an NFP report?
In general, the high value of the NFP data is considered a positive factor for the US economy. So stocks and the US dollar should benefit from this. At the same time, the low indicator is considered negative for the US economy.
However, most often, in practice everything is not as simple as in theory. We also need to take into account other factors, such as market expectations.
First, you need to understand how to read the NFP report correctly. To do this, consider the NFP report shown in the screenshot below:
The NonFarm Payrolls report includes not only data on employment outside of agriculture, it also measures:
- unemployment rate;
- private payslips;
- participation rate;
- average hourly earnings;
- the average working week.
Usually, before the actual release of the NFP, there will be a forecast as to what the NFP data should be. Obviously, if the actual values of the NFP turn out to be higher than expected, this signals a stronger economy, and, consequently, the dollar should rise.
On the other hand, if the actual NFP indicator is lower than the forecast, it signals a weaker economy, and therefore the dollar should fall.
The greater the difference between the actual NFP data and the forecast, the greater the market jump will be.
What currency pairs should I trade during NFP?
The best currency pairs for trading during Non-Farm Payrolls are crosses with the US dollar, namely the main currency pairs such as EURUSD, GBPUSD, AUDUSD or USDJPY.
Minor and exotic currency pairs can also indicate an increase in volatility at the time of the NFP release, however, other crosses tend to have an unpredictable price reaction.
For example, look at how GBPUSD (left) reacted to one of the latest NFP releases compared to GBPAUD (right).
The GBPUSD pair had a significant price movement compared to the GBPAUD pair, which almost did not move. This is because GBPAUD is a synthetic pair formed by GBPUSD and AUDUSD. The GBPAUD pair did not show strong volatility, because both GBPUSD and AUDUSD will weaken (strengthen) at the same time, absorbing price fluctuations for the GBPAUD pair.
See also what brokers there are with a low spread.
NFP Trading Strategy
There is no single strategy for trading on NonFarm Payrolls news. You should be prepared for different market scenarios. Now we will look at 3 different NFP trading strategies.
1. Trading ahead of the NFP report
For this type of NFP trading strategy, we use a short-term time frame, because the main goal is to scalp the market to get a quick profit:
- 15 minutes before the NFP release, mark the maximum and minimum of the last 4-hour trading range on your chart.
- Place a pending buy order above the maximum of the range and a pending sell order below the minimum of the range.
- A protective stop loss is placed on the opposite side of the range for both orders.
- Wait until the price activates one of your orders after the NFP exit.
- Don't forget to cancel another pending order when you have a position open.
- As for the take profit, use the price equal to the trading range specified in step 1.
2. Trading on fading
The idea of this NFP strategy is to wait for the initial surge, and then trade what happens after it. This NFP trading strategy works because, most often, the initial surge of NFP is just a market reaction, followed by a decline or rise. After some time after the publication of the report, traders begin to take profits or reduce losses, which causes a temporary pullback, which creates a short-term trading opportunity for us.
Look at the price behavior on the USDJPY currency pair after the publication of the NFP report:
- USDJPY takes off after the report is released;
- at some point, the market reaches a plateau (an overbought indicator);
- profit-taking is observed, and the currency pair begins to fall.
3. Swing trading
NFP trading can also be extremely profitable with long-term market trends. This approach can be effective, but you need to be patient.
In most cases, unemployment rates can influence long-term trends. NFP is a strong factor in the Forex market, which has a much deeper impact on price behavior than on the initial reaction. Often, the price will follow the direction set by the NFP.
As a rule, Friday's NFP can give us clear hints whether the current month will be bullish or bearish. If we break above Friday's high on the next trading day, there is a fairly high probability that the pair will remain bullish throughout the month. Conversely, if we break below Friday's low on the next trading day, there is a fairly high probability that the pair will remain bearish throughout the month.
As you can see, as soon as Friday's high / low NFP was broken, in most cases, the GBPUSD pair continued to trade in the direction of a breakout.
A simple strategy would be to simply place a pending buy order above Friday's high and a pending sell order below Friday's low.
See also the list of the best Forex brokers.
Thus, the NonFarm Payrolls report can represent both short-term trading opportunities and long-term potential profit. For intraday traders, trading on NFP news on Forex can be a source of great volatility and, as a result, an opportunity to quickly make a profit. For swing traders, the NFP trading strategy can be used to determine the market shift for a month ahead. Profitable trading for you!
Read also the article "TOP 12 popular strategies".