The Unemployment Report, also referred to as the Non-Farm Payroll (NFP) Reports, is a major indicator of a country's economic health, and one of the most anticipated economic reports for investors in all markets, including the Forex. This report, in the United States, includes roughly 80% of the paid workers in the country and excludes government, farm, and non-profit employees and is released on the first Friday of every month by the U.S Bureau of Labor Statistics
The Unemployment/Non-Farm Payroll Report is one of the major five economic reports for each country that traders jump on, the other four being interest rates, consumer price index, trade balance, and retail sales.
Even among all these, the unemployment report often gets the strongest attention, and is considered one of the most accurate economic indicators of a country's overall economic health, which makes sense. The more people who are working, the more currency you have being made and spent in a nation's economy.
Should You Trade on the Non Farm Payroll Report?
The short answer is: "Not unless you know what you're doing."
The Non Farm Payroll Report is often seen by new traders in the forex markets as a juicy profit opportunity. But, is it really as easy a call as some would have you believe?
The problem with attempting to trade on this report is that the hour when this announcement is made is one of the most volatile periods during the month; therefore it can be susceptible to big surprises in market movement.
When asking yourself the question: "How do I trade the Non Farm Payroll Report?" The answer you should be heeding (if you're new to forex trading) is: "You don't." Or to put it another way, "By maintaining a neutral position."
The market is far too volatile during this time to expect a high probability trade. There may be some gamblers who relish the thought of "placing a bet" to go long or short, expecting to make a small fortune for a few minutes work. But many serious traders know better and prefer to remain on the side of caution. The majority of them say the same thing: "Stay on the sidelines and wait for the market to calm down." This may take between 30 to 45 minutes in some cases, and even then the direction of the market may still be uncertain.
Of course, if you are an experienced trader using price and volume indicators you may have an easier time during these volatile trading periods. Your trading time may be all of about a half a minute or so. But trading within these windows of opportunity a small fortune can be made if you get in and get out at just the right moments. And, as mentioned before, if you truly understand what you are doing.
So how do the savvy traders manage during this magical time? The same way ALL trading should be done . . . plain and simple. You do what the market tells you to do via price and volume. There is no secret and no chart or no news report that can predict the future, especially when trading in these short time intervals.
No matter what you read or believe, the market will do what it wants.
The Non Farm Payroll announcement is just like any of the other volatile government announcements: you wait for the price to move. It either goes up really fast and pauses, retracing slightly, or it goes down really fast and pauses, then retraces. It has followed this pattern every single time this phenomenon has occurred. You simply watch the tape and when the opposite side of the move starts to be taken out in bug chunks you get ready to jump in. You can miss it by a tick or two and not suffer any ill effects from having done so.
On the other side of this question, there are many who believe that the Non Farm Payroll report can set the tone – creating a trend – for the rest of the month. If this is true, it means that a trader would not have to trade the report in the short term with all the accompanying risks. Instead, a trader could open up a longer term trade late on Friday, Sunday, or Monday – when the trading environment is calmer – and hold onto the trade for days or even weeks. These trades could have the potential for gains of 100 pips or more.
Whichever way you choose to go, be certain of the strategy you use and of your ability to accomplish the trade you intend to make. Forex trading on the short term is often not something that new traders should necessary expect to be able to successfully achieve. When contemplating a trade in a volatile market, just be careful and don't try something you're not one hundred percent certain of.
In the development of your forex strategy do you wonder how you can trade the non-farm payroll report?
Seeing this is one of the most, if not the most, volatile announcement during the month (first Friday in every month) newer traders watch the huge movements and wonder how to make money from all that volatility.
The answer given below you may not fully appreciate until some explanation is offered.
Question
"How do I trade the non-farm payroll report?"
Answer
"You DON'T!"
Or to put it another way, "By maintaining a neutral position!"
Some suggest you can trade volatile market movers such as the non-farm payroll report by waiting for the first leg of the move, up or down, then wait for price to pull back 10 or 15 pips, then enter a trade to catch the second leg of the move which often follows.
That's one possibility but still high risk..
Trading The Aftermath
However, while many professional traders sit out the non-farm payroll report, that doesn't mean they don't trade afterward.
After the market has made a violent move in one direction you sometimes see price stalling and then give a clear signal that it's momentum is exhausted.
Look For Combination Factors
This may be in the form of a candle pattern such as a hammer with a very large shadow which also happens to be on a key support or resistance level.
Now you can enter a trade with a small level of risk as you place your stop just above the high or low of the candle signal.
By applying a number of technical indicators to the chart pattern after a non-farm payroll report, you may see a point where a previous support/resistance level convergences with a Fibonacci retracement or extension, or the 200 EMA (Exponential Moving Average), or a pivot point.
If a distinctive candle forms at that level also you can expect a reasonable price bounce and extract a number of pips from the market.
This advice applies to all fundamental announcements which are considered 'market movers'.
By developing a cautious forex strategy based on sound trading principles, you will enjoy this business and get the satisfaction of seeing your account equity steadily growing.
I want to say this again: trading right after an economic report is released can be very dangerous to your account balance.
I am not saying that it is IMPOSSIBLE to trade directly after a report is released. I am simply warning you that trading after an economic report carries enormous risks.
Trading for the longer term, and looking for the bigger moves, can be very rewarding, less stressful, easier to manage, and more profitable in the long term. I find that many traders that I work with move from short term trading to longer term trading so that they can get more out of each move and spend less time staring at charts. Trading in the longer term might not be best for you, but I believe that it is worth considering.
