The Non-farm payroll (NFP), which is also known as non-farm employment change, is a statistical data that contains the number of jobs added, excluding non-profit organization, government, private households, and farm employees, that were added into the United States. The NFP numbers indicate the US economic health of the previous month from the date it was released by the United States Department of labor.
The outcome of the NFP number has a significant influence in the decision-making of the monetary policy such as introducing stimulus to stimulate the US economy to ensure it falls within the acceptable healthy range. As traders, banks, and even hedge funds following closely to the event, the NFP event has led to one of the highest volatility events in the forex market.
As forex traders planning to trade during the NFP event, it is crucial to conduct a fundamental analysis to understand the US market conditions. Through the knowledge of the US market, it is important to form a strong bias before analysing the pairs to trade on. Upon deciding on the best pairs that are aligned with the bias that was formed, the timing of the entry and exit is the next step during the NFP. The volatility of NFP may stop-out inexperienced traders within less than a minute and this could be easily prevented if entry and exit timing were properly defined.
With the assumption that all preparations were properly made, and timings were properly defined, it is important to understand that when comes to trading NFP, there are no guarantees but rather an increase in the possibility of the forecast charts will be aligned to the initially formed bias.
The following examples shown below are some of the most possible outcomes when trading NFP:
Figure 1 depicts the NFP event, 4th Dec 2020, on EUR/USD pair in M1 timeframe. Analysing the NFP statistical data, the value indicates that there is a huge reduction of jobs added throughout the month of November. On the other hand, there is an increase in the average hourly earnings m/m and a decrease in the unemployment rate indicates the economy is improving.
As mentioned in the previous paragraph, the timing of entry and exit is impeccable for any successful trades. Assuming that no prior fundamental analysis was prepared, inexperienced or unprepared traders can be easily wiped out due to traders, banks, and/or hedge fund closing their positions. Therefore, a wiser approach when trading NFP is to wait out for about 5 mins and in the meantime, countercheck if the initial bias formed is aligned to the NFP values before scouting for a possible entry.
The 4th Dec 2020 NFP indicates that the USD economy had recovered slightly leading to the strengthening of the USD. Based on the formed bias, there is a higher probability to sell than to buy the EUR/USD. As such, the EUR/USD eventually weaken after about 10 mins when the NFP data was realised which is aligned to the initially formed bias. Therefore, traders who have planned their trades beforehand will have a higher probability to be profitable when trading during the NFP event.
3 key points to take away from this article
- Conduct a strong fundamental analysis to form a well strong and justifiable initial bias.
- Never rush into a NFP trade but rather wait out for about 5 mins to understand the NFP data.
- Only time for a possible entry to enter a trade if the NFP is aligned to the initially formed bias.
면책 조항: 본 게시글에 표현된 견해는 전적으로 작성자의 견해이며 Followme의 공식 입장을 대변하지 않습니다. Followme는 제공된 정보의 정확성, 완전성 또는 신뢰성에 대해 책임을 지지 않으며, 서면으로 명시적으로 언급되지 않는 한 해당 내용을 기반으로 취해진 어떠한 조치에 대해서도 책임을 지지 않습니다.
