The are many new forex traders that don’t know what a non-farm payroll is. In here, I will give a brief run down of what a non farm payroll is and give you a system to trade the non farm payroll.
INTRODUCTION: WHAT IS THE NON-FARM PAYROLL (NFP)
The Non Farm Payroll , or NFP is one of the biggest currency news that is released every month.
When is the non-farm payroll news released? On The first Friday of Each month.
All you need to know now is that the non farm payroll reports shows the current state (how good or bad) of the US economy.
So…if the US economy is good, the value of US dollar goes up, if not, it goes down (or Euro rises up…if you are trading EURUSD).
WHY TRADE THE NON FARM PAYROLL?
There are those traders that don’t like trading news and there are those that like to trade currency news. For those that like to trade currency news, here are their main reasons:
- trading the non farm payroll news can be really profitable, the thing is, you’ve got to get the direction right.
- you make profits in matters of seconds and minutes and they are huge profits. In a matter of few minutes, price can move from anything 40-200 pips. On ordinary days, you’d average 40-70 pips move in a day compared to the price move due to the release of the non farm payroll news.
The important thing here is to note here is this: if you get the direction right.
SOME FOREX TRADERS WILL NOT TRADE THE NON-FARM PAYROLL
As always, what is exciting to some traders will not be so for others. So there are traders that will not trade the non farm payroll and here are some of their reasons for not doing so:
- they think, its gambling trying to guess which way the market is going to move when the news comes out.
- the tendency of price to whipsaw means that sometimes your trade direction may be right but you’d get stopped out prematurely when price whipsaws and hits your stop loss.
- spread increase, which means your trading costs go up as time comes new to the non farm payroll news release.
- liquidity can dry up and sometimes, if you are in the wrong direction, stop loss jumping can happen. What this means is that even though you have a stop loss to protect your account, due to the fast moving nature of the market when news is released, your stop loss won’t be hit and you can lose a significant amount of your account if this happens.
FOREX CALENDER AND WHERE TO GET NON FARM PAYROLL DATES
Nonfarm payrolls is an employment report released monthly, usually on the first Friday of every month.
The best place to get the forex calendar for other currency news as well as nonfarm payroll is at forexfactory and there you’ll have a list of dates and times where forex news will be released:
HOW TO TRADE THE NON FARM PAYROLL NEWS
With this Non Farm Payroll news forex trading strategy, you really do not care which direction the forex market will go when the new is released. Because what you are going to do is place two opposite pending orders on both sides to catch the price move in any direction it goes as soon as news is released.
The non farm payroll trading strategy is suitable in the situation where the market travels in a tight range before the news is released.
Non Farm Payroll News Forex Trading strategy Rules:
- 30 minutes before the non farm payroll news is due, open your chart in the 5 minute timeframe.
- Find the highest high and lowest low in this 5 min chart.
- Place 2 pending orders on both sides, a buy stop pending order at least 5-10 pips above the highest high and and a sell stop pending order 5-10 pips below the lowest low in that range.
- Then place your stop loss on either side for each of the pending orders: your stop loss for a pending buy stop order will be the level at where you place your sell stop pending order and vice versa.
- Then wait for news to get released and it will activate one of the pending orders. Whatever pending order that is not activated has to closed immediately.
TAKE PROFIT OPTIONS
Here are a few options on how to take your profits:
- 2 times the range (example, if the distance between the high and low is 40 pips, then set your take profit level at 80pips)
- or you can set your TP at 3 times the range
- or another way is not to have a take profit target but to use a trailing stop and place it 3-5 pips behind the lower swing highs (for short entry trade) and ride out the price move until you get stopped out eventually. Do the exact opposite for a long(buy) trade.
DISADVANTAGES OF THE NON FARM PAYROLL NEWS TRADING STRATEGY
One of the big problems for forex traders trading the NFP is the price whipsaws. Price whipsaws can happen a few minutes before the news is released, this may be due to traders taking positions or exiting positions prior to the news being released and it can also happen a few seconds after the news is released.
See chart below to see what I’m talking about:
Disadvantages of trading the NFP (non farm payroll):
- price spikes or whipsaws, which can tend to activate both pending orders and then hit your stop loss (if they are placed too close) and you have two loses, almost at the same time.
- lack of liquidity can also mean that sometimes your pending order may get filled at a very bad price.
- increase of spread before and just a few minutes after NFP news release.
BE CAREFUL WITH TRADING FOREX NEWS LIKE NON FARM PAYROLL
- the movement of price when non farm news comes is very fast, so you can lose a lot of money if you get your direction of breakout wrong. If you thing, a 100 pip moves on the wrong side can wipe out your trading account, then you should’t be trading contract sizes that will exactly do that.
- as mentions, forex brokers increase spread a great deal during major news events like the non farm payrol therefore you may have to place larger stop loss distance.
- don’t get into the habit of trading every forex news you see…only trade ones that really matter or you have a good understanding of.
Don’t forget to share and tweet the non farm payroll news forex trading strategy to your friends by clicking those buttons below.