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Stay updated on NFP every month
Join HotForex as they explain why the NFP remains the KEY economic announcement that can create the most volatility for traders and understand more about its effects on the markets.
Learn how to position yourself for the NFP. What are the pros and cons of trading the NFP and how can you read the expectations using the previous results and the current news?
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Trading on NFP release
The rate of change in the non-farm workforce, also known as non-farm payrolls or NFP is one of the most valued indicators on the economic calendar. Traders and investors find it as important as monetary policy meetings and speeches from central bank heads. This indicator makes market volatility increase, and you can create profitable strategies based on it. FBS analysts will explain to you what strategies are more suitable for trading during NFP releases.
What are non-farm payrolls and when are they released?
The change in the non-farm workforce represents the change in the number of people employed during the previous month, but does not include those working in the agricultural industry. The more people who work, the better the economic condition. If the economy grows then companies need more people to work. When people get jobs and stability, then they start spending income and consequently will improve the economy. On the other hand, the unfavorable economic situation makes companies need fewer workers and lay off some workers. Then people lose their jobs and start limiting spending. This will reduce the level of consumer spending and the result will slow down economic growth.
As a result, this indicator becomes the basis for the Federal Reserve to decide future interest rates. The higher the indicator, the more likely it is to raise interest rates in the future, on the other hand, a decline in the NFP value increases concerns about a slowing economy and reduces the likelihood of an interest rate hike by the Fed.
The US NFP rate is usually released on the first Friday of each month along with the average hourly earnings rate and the unemployment rate. You can see when the data is released next month on the economic calendar.
What can be traded during the NFP release?
Since NFP is an American indicator, it will affect the US dollar. Some analysts suggest choosing between GBP/USD or EUR/USD for trading. However the EUR/USD pair tends to have higher volatility at the time of this data release.
Trade before NFP release
Since many are expecting this event, we could see volatility dropping before the NFP data is released. We recommend staying out of the market during the early trading session on Friday as you can be affected by changes in volatility.
A simple short -term trading strategy for NFP
For this strategy, we use a 5-minute chart. Let’s see the steps.
- Step 1: 30 minutes before the release of the NFP, open the chart and find the highs and lows for the previous 4 hours.
- Step 2: Place two pending orders on either side: a buy pending order approximately 5-10 pips above the highest value and a sell pending order 5-10 pips below the lowest value in the range.
- Step 3: Place stop losses on both sides: your stop loss for long positions should be for sell pending orders and vice versa.
- Step 4: Wait for the news to be released and it will activate one pending order. Don’t forget to cancel your other pending orders.
- Step 5: It is recommended to set the target price and the difference between the highest and lowest values of the same volume. You can use this formula to define a target: Buy Order + (highest value before release – lowest value before release) Sell Order – ((highest value before release – lowest value before release))
- Step 6: Enjoy the profit.
On the 5-minute chart for EUR/USD, we set the high at 1.1384 and the low at 1.1362. We opened a buy pending order at 1.1389 and a sell pending order at 1.1357. Then we place the stop loss: the stop loss for the long position is placed at 1.1357, while the stop loss for the short position is at 1.1389. After the release, we can see a large bullish candlestick, which indicates bullish strength. We placed take profit at 1.1411, and canceled short orders. After that the price immediately started to fall. We made a profit of +22 pips.
The strategies described above can maximize your profit and reduce risk when volatility increases. This will help you trade EUR/USD more easily during NFP releases.