Trading the Non-Farm Payroll Report (NFP)

The non-farm payroll (NFP) report is a key economic indicator for the United States. It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees, and employees of nonprofit organizations. Search for brokers

The non-farm payroll report causes one of the consistently largest rate movements of any news announcement in the forex market. As a result, many analysts, traders, funds, investors, and speculators anticipate the NFP number and the directional movement it will cause. With so many different parties watching this report and interpreting it, even when the number comes in line with estimates, it can cause large rate swings.2 3 Learn how to trade this move without getting knocked out by the irrational volatility it can create. The NFP Trading Strategy

The NFP report generally affects all major currency pairs, but one of the favorites among traders is the GBP/USD. The forex market is open 24 hours a day, so all traders have the opportunity to trade news events. The logic behind the strategy is to wait for the market to digest the meaning of the information. After the first fluctuations occur, and aftermarket participants have time to think about what the numbers mean, they will trade towards dominant momentum. They are waiting for a signal that the market may have chosen a direction of interest. This avoids premature entry and reduces the chances of being kicked out of the market before deciding on a direction.

The Rules

The strategy can be traded off of five or 15minute charts. For the rules and examples below, a 15minute chart will be used, although the same rules apply to a five-minute chart. Signals may appear in different timeframes, so stick with one or the other.

• Nothing is done during the first bar after the NFP report (8:30 to 8:45 a.m. in the case of the 15minute chart).

• The bar created from 8:30 to 8:45 will be wide-ranging. Traders wait for an inside bar to occur after this initial bar (it does not need to be the very next bar). In other words, they are waiting for the most recent bar's range to be completely inside the previous bar's range.

• This inside bar's high and low rate sets up our potential trade triggers. When a subsequent bar closes above or below the inside bar, market participants take a trade in the direction of the breakout. They can also enter a trade as soon as the bar moves past the high or low without waiting for the bar to close. Whichever method you choose, stick to it.

• Place a 30pip stop on the trade you entered.

• Makeup to a maximum of two trades. If both get stopped out, don't reenter. The inside bar's high and low are used again for a second trade if needed.

• The goal is the goal of time. Most of the trips usually take place within 4 hours. Therefore, traders will leave 4 hours after entry time. If the trader wants to continue trading, trailing stops are an alternative.

Final result

The logic behind this strategy of trading NFP reports is based on waiting for a small integration, the inner bar, after the initial volatility of the report has settled and the market has decided which direction to go. By controlling risk with modest outages, you are almost always ready to profit potentially from the big moves that occur with all NFP releases.