How to Trade on NonFarm Payrolls ? - My secret strategy

Hello, dear ladies and gentlemen, forex traders!

Today we will talk about trading on the Nonfarm Payrolls news. Here, I will explain, what this news is bout, why traders always wait for them, when they release, where to look for them and most importantly - why after the NonFarm Payrolls release the market strongly fluctuates and how do we trade this monthly statistics with a 100% probability of making a profit (I will reveal the secret strategy).

What are Nonfarm Payrolls?

Nonfarm Payrolls (NFP) is the number of new jobs in non-agricultural sectors of the economy over the past month.

Released figures show the dynamics of changes (increase, decrease) relative to the previous period.

This statistics covers about 500 sectors of the economy: construction, trade, business services, transport, logistics, financial sector, medicine, tourism and so on. The calculations do not take into account workers in the agricultural sector, non-profit organizations and self-employed citizens.

A change in the NFP’s value of 100-200 thousand jobs will lead to strong volatility in quotations of world currencies in pair with the US dollar, gold, and stock markets.

When is this data released and where to find it?

 

Calculation and publication of the NFP are carried out by the Bureau of Statistics of the USA (BLS), releasing preliminary data on the first Friday of the month, at 15.30 or 16.30 according to the MSC, depending on the shift in summer (winter) time. Considering the importance and influence of the event on the world economy, repost of this statistics can be seen in any economic calendar, the source is on the BLS website.

On the forextraderportal.com website, the economic calendar is located in the drop-down menu of the “Trading Tools” tab.

Also, the upcoming economic events can be viewed on the popular Forex Factory service.

The time of news release depends on the Bureau of Statistics of the USA. The trader should always inquire about the exact time and the release date, as it depends on the willingness of the Bureau of Statistics calculations.

Any calendar indicates the format of the data in the form of three digits: the previous, the actual value and the forecast.

How does the market react?

Traders evaluate the released data by several criteria:

• Coincidence with the forecast or with the previous value. With such figures, a volatility leap can pass without a strong and directed short-term movement;
• Strong changes cause global shifts - reversals or strengthening of long-term trends, changes in the values of historical volatility.

The increase in jobs is a leading indicator of the growth of the US economy.

New hands in the office or at the factory - this is the last stage of the preliminary work done by the company to expand the business. By this time it already has:

• Attracted investments;
• Expanded production facilities or sales departments for purchased products.

Growing employment leads to an increase in US GDP, low nonfarm data is a sign of a coming crisis.

This is clearly visible from the ‘all employees‘ chart, built on the dynamics of changes in the NFP since the beginning of the calculation, where the areas of the world economic crises are noted.

• Long-term reaction to the non-farm growth means the weakening of the US dollar to the basket of major Forex currencies;
• A short-term reaction is unpredictable due to a sharp jump in the rate, triggering a set of pending orders and not predictable exit and infusion of huge cash in a short period of time.

Released on June 1, 2018, data on changes in jobs at 15.30 left the current EURUSD rate unchanged. Despite the volatility jump of 50 points, with the start of the American session, quotes returned to the price level of the news release.

According to the statistical data of our study of historical changes in quotes on the news, the reaction of the major currency pairs to NFP is as follows:

• 50-60 points - average movement, occurs most often;
• 100 points - much less often, but also happens;
• 150-200 points - an extreme reaction possible, it is rare, but this option should be taken into account;

Why does the market „fly“ on NonFarm Payrolls?

Significant exchange rate changes that occur on the Forex currency market when macroeconomic indicators are released are related to the lack of support for quotations by market makers.

During the release of the important news, there is no need to maintain market liquidity, as attention is attracted to the funds of large players. As it was said above - the value of the indicator is a signal for reviewing long-term trends, therefore huge amounts of funds are put in motion.

The absence of a market maker leads to negative consequences:

• Expansion of the spread (the distance between the sale and purchase price);
• Low volumes of nearby orders in the order book.

Therefore, the inputs of large players literally “collect the order book” - at the time of analyzing applications at all price levels, the same applies to the exit from positions. The market moves by 50-150 points, which is an acceptable error for long-term positions, but it is detrimental for stops limiting the losses of intraday players.

You can find the detailed description of the market makers behavior mechanism and reasons of order book liquidity change on our website.

Roughly speaking, the market “flies” during the release of the NFP because it is relatively easy to move the price at this time. And not because all the world’s traders panic sell/buy currency.

Trading Strategies During Nonfarm

Common trading strategies on Nonfarm payrolls:

• Formation of positions (buy/sale) before the release of news based on the forecast;
• Pending orders “in both directions” with take-profits of 50 pp and an entry level of about 20-30 pp. When one of them is triggered, the second order is canceled.
• Variations of the first two approaches;

In the second case, the trader believes that only one of the pending orders will work, but as experience shows and proves the schedule of the last NFPs, the fluctuation can open both entrances, thereby taking a loss in the Lock, which means bring a guaranteed loss, instead of the expected profit.

The same happens if you enter pending orders on the price rollbacks. In the example considered, the price went up, then it was necessary to place an order in the purchase at the news release point or below, in anticipation that the first impulse would indicate the direction of the short-term trend, and the correction would allow entering at a more favorable price.

It does not matter at what level the purchase of EURUSD - (1) or (2) would be made - both options would be closed at a loss.

These examples clearly show the disadvantages of strategies working on news, which can be easily verified by conducting an express test on the immediate historical values of economic indicators and quotations.

Add slippage, terminal downtime, the banal failure of order triggering and other delights that are frequent trade satellites in the news. In addition, the news output causes congestion of broker servers, the number of applications increases, similar to the DDos attack.

The “dedicated channels” of large customers are serviced first, while small ones get help later. Pending orders are stored on the broker’s server - the robot may not have time to withdraw the stop-loss or take-profit in time, execute the order at a price “worse than the market”, etc.

In general, according to unofficial statistics of brokers, newsmen (traders trying to trade on news) are unprofitable. They run from one kitchen to another, they search for loyal auto-confirmation of transactions, but they are quickly found and either festered (because the broker is technically very disturbed by newsmen, their orders are difficult to handle), or hedged (go interbank, which makes the execution of orders on the news slow) .

So, what should I do if today is the NonFarm Payrolls ?

There is only one totally profitable way to trade on nonfarms! So, how should we trade them?

JUST DON‘T

Yes, yes, that’s right. If you see that today is NFP, then:

• When trading intraday, cloase all positions half an hour before the news release;
• With long-term trading, remember that the average price movement is 50-60 points, the maximum one is 150-200 points. This should be taken into account, possibly change the stop-loss;
• Remember that after an average of 6 hours, the price often returns to the same level as before the news;

But an interesting point: if you study a lot of strategies, you will see that on large timeframes (H1, H4, D1), news, bringing changes, can serve as a trigger for strategies. The market wins back the data with the “second wave”, after the volatility calms down, on the flat movement, market makers will begin to gain positions. This strategy is called a “step” - in the end of fluctuations, there are a strong momentum and a directed trend in a narrow channel, actively shifting markets to new price levels.

Conclusion

Let‘s summarize the rules of a 100% profitable trading strategy on Nonfarm Payrolls:

• Half an hour before the release of the major news, we simply remove all the positions from the market. Even if there is a small loss, it is likely that it will be better to close them.
• Two hours after the release of the non-farm you can trade in the normal mode again. But since it’s already Friday evening - it makes no sense to trade. So, an hour or half an hour before the non-farm close all the positions and go to rest.

That is such a smart trading strategy on non-farms, you‘re welcome.

Regards, Michael

ForexTraderPortal.com