Non-Farm Payroll Trading Strategy (NFP) - How that Works

Trading the Non-farm Payroll data release is really very hard especially if you are new to the forex trading community. However, once you master the NFP Forex trading skills you can easily make a decent income within a short period of time. But before you start trading the high impact nfp news release you need to learn the art of fundamental analysis first. This is often considered to be most powerful price driving catalyst and even the long term trend of any currency pair can easily get changed. In today’s article, we will give you a clear idea about trading non farm payroll data release. However, you must be extremely careful in trading since noone can assure you 100 percent winning the trade in this community.

The 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.

Draw the key support and resistance level

You need to have a strong knowledge about the support and resistance level. Most of the time the market bounce back after touching the key levels. However, at times you will see that price is not respecting any major levels after the news release and this usually happens during the trend reversal. But in the forex market change in trend is very normal and you have a deal with this by accepting managed loss. That’s why money management is very important in forex news trading. Let’s see a classic trade setup in the EUR/USD pair during NFP news release.

Non-Farm Payroll Trading Strategy (NFP) - How that Works

Figure: Rejecting the key resistance level with the bearish pin bar

In the above figure, the shaded portion is the key resistance level of the EUR/USD pair drawn in the higher time frame. But since the market volatility is extremely high the professional traders switch back to the 5-minute time frame during the event of the NFP news. After the data is released they assess whether it’s favoring the current trend of the market or not. If it goes in favor of the current prevailing trend the traders wait patiently for the formation of price action confirmation signal in the lower time frame.

Explanation of the above trade setup

The professional traders waited patiently for the resale of the NFP data. The data came out positive which means the U.S dollar will gain strong bullish momentum. During NFP trading it’s always better to trade the major pairs. We have used EUR/USD pair in the above example. See how the price tried to surge up upon the release of the data but eventually, the bears took control of the market forming a nice bearish pin bar. Once the pin bar is formed at the resistance level we executed our short orders in the EUR/USD pair. But it’s not like that we will always have pin bars to trade. As a news traders, it’s very crucial for us to learn all the reliable formation of the Japanese candlestick pattern since it will give us a clear idea to execute our trade.

Useful tips on NFP Trading

Trading is all about probability. Though this system is very profitable, still we should not risk more than 2 percent in single trade. Instead of depending on all the candlestick pattern it’s better for us to depend on the high-quality price action signal. The pin bar, engulfing pattern is the most used pattern by the professional news traders. But when you draw the key support and resistance level always make sure that you are using the higher time frame. Sometimes you can also use the 100 and 200 days SMA to find the key levels in the market. However, if you are not sure about your fundamental analysis after seeing the result of the NFP data it’s better for you to stay on the sideline. The market will always give your second opportunity to execute your trade.
See also: