How to trade on NonFarm Payrolls?
Good afternoon, ladies and gentlemen, Forex traders!
Today we’ll talk about trading on Nonfarm payrolls news (Nonpharma, Nonki, NFP, as they are not called). About what kind of news it is, why traders always expect them, when they go out, where to look for them, and most importantly - why the market “flies” when NonFarm Payrolls comes out and how do we trade these monthly statistics with a 100% probability of making a profit (I’ll reveal the secret strategy).
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) is the number of new jobs in the non-agricultural sectors of the economy over the past month.
The released figures show the dynamics of changes (increase, decrease) relative to the previous period. Translated literally, Nonfarm is “non-agricultural”, and Payroll is “payroll” - that is, a piece of paper that gives out salaries.
These statistics cover 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 agricultural workers, non-profit organizations and self-employed citizens.
A change in the NFP value of 100-200 thousand jobs will lead to strong volatility in world currency quotes in pairs with the US dollar, gold and stock markets.
When does this data come out and where to watch it?
The NFP is calculated and published by the US Bureau of Statistics (BLS), releasing preliminary data on the first Friday of the month, at 15.30 or 16.30 MSK, depending on the shift in summer (winter) time. Given the significance and impact of the event on the global economy, a repost of these statistics can be seen in any economic calendar, the primary source is on the BLS website.
On tradelikeapro.ru, the economic calendar is located in the drop-down menu of the “Tools” tab
Also, upcoming economic events can be viewed on the popular Forex Factory service.
News release time depends on the US Bureau of Statistics. A trader should each time ask about the exact time and date of exit, since it depends on the readiness of the calculations of the Bureau of Statistics.
Any calendar indicates the data format in the form of three digits: previous, actual value and forecast.
How does the market react?
Traders evaluate the released data according to several criteria:
- Coincidence with the forecast or with the previous value. With such numbers, a jump in volatility can occur 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.
Job growth is a leading indicator of US economic growth. New hands in the office or in the workplace is the last stage of the preliminary work done by the company to expand the business. By this time, she has:
- Attracted investment;
- Production facilities or sales departments have been expanded for products already purchased.
Growing employment leads to US GDP growth, low nonfarm data is a sign of the coming crisis.
This is clearly seen from the graph of all employees (all employees), built on the dynamics of changes in NFP from the beginning of the calculation, where areas of global economic crises are marked.
- A long-term reaction to the growth of non-farms is the weakening of the US dollar against a basket of major Forex currencies;
- A short-term reaction is unpredictable due to a sharp jump in the exchange rate leading to the triggering of many pending orders and the unpredictable exit and infusion of huge amounts of money into the markets 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 jump in volatility of 50 points, with the beginning of the American session, quotes returned to the price level of news release.
According to the statistics of our study of historical changes in news quotes, the reaction of the main currency pairs to NFP is as follows:
- 50-60 points - the average movement occurs most often;
- 100 points - much less often, but it also happens;
- 150-200 points - an extremely possible reaction, it is rare, but this option should be considered;
Why does the market “fly” on NonFarm Payrolls?
Significant exchange rate changes occurring in the Forex currency market with the release of macroeconomic indicators are associated with the lack of support for quotes by market makers.
During the release of important news, there is no need to maintain market liquidity, as the attention and funds of large players are attracted. As mentioned above - the value of the indicator is a signal for revising long-term trends, therefore, huge amounts of funds are set in motion.
The absence of a market maker leads to negative consequences:
- Widening the spread (the distance between the purchase and sale price);
- Low volumes of nearby orders in a glass.
Therefore, the entrances of major players literally “collect the glass” - at the moment of analyzing applications at all price levels, the same applies to exit positions. The market moves 50-150 points, which is an acceptable error for long-term positions, but deadly for stops that limit losses of intraday players.
On our site, the mechanism of behavior of market makers is described in detail, the causes of changes in liquidity in a glass are investigated in detail.
Roughly speaking, the market “flies” during the release of NFP because it is relatively easy to shift the price at this time. And not because all traders in the world in a panic sell / buy currency.
Non-Farm Trading Strategies
Common trading strategies for Nonfarm payrolls:
- Formation of positions (purchase / sale) before the release of news on the basis of the forecast;
- Pending orders “in both directions” with take points at 50 pips and entry level plus / minus 20-30 pips. 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 delays will work, but as experience shows and the graph of the latest NFPs shows, the fluctuation can open both inputs, thereby taking a loss in the Lock - lock, i.e. bring a guaranteed minus, instead of the expected profit.
The same thing happens if you enter pending orders on price pullbacks. In the considered example, the price went up, so you should set a buy order at the news outlet or lower, in expectation that the first impulse will indicate the direction of a short-term trend, and the correction will allow you to enter at a more favorable price.
It does not matter at what level EURUSD would be purchased - (1) or (2) - both options would close at a loss.
The above examples clearly show the disadvantages of strategies for working on the news, which can be easily verified by conducting an express test on the nearest historical values of economic indicators and quotes.
Add to this slippage, freezing of the terminal, banal non-execution of orders and other delights that are frequent trading companions in the news. In addition, the news release causes congestion on brokers' servers, the number of applications increases, like a DDos attack.
First of all, “dedicated channels” of large customers are served, with small ones - “how it goes.” Pending orders are stored on the broker's server - the robot may not have time to withdraw a stop or take on time, execute an order at a price “worse than the market”, etc.
In general, according to unofficial statistics of brokers, newsmen (traders trying to trade on the news) are unprofitable. They run from kitchen to kitchen, look for loyal auto-confirmation of transactions, but they are quickly calculated and either spread rot (because the broker is technically very disturbed by the news, their orders are difficult to process) or a hedge (they are transferred to the interbank bank, which makes execution of orders on the news slow) .
So what should I do if today’s on the NonFarm Payrolls calendar?
There is only one completely profitable way to trade on non-farms! So how do we trade them?
Yes, yes, that's right. If you see NFP coming out today, then:
- When trading intraday, half an hour before the news release, close all positions;
- For long-term trading, remember that the average price movement is 50-60 points, the maximum is 150-200 points. This must be taken into account, it is possible to 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 that carries changes can serve (attention!) As an impetus for strategies, as a trigger. The market wins back the data in the “second wave”, after the volatility calms down, on the flat movement, market makers will begin to gain ground. The tactic is called “step” - a step, at the end of fluctuations in a narrow channel there is a strong impulse and a directed trend, actively shifting markets to new price levels.
We summarize the rules of a 100% profitable trading strategy on Nonfarm Payrolls:
- Half an hour or an hour before the big news is released, we simply remove all positions from the market. Even if there is a small loss, it is most likely to close them.
- About two hours after the nonpharm exit, you can again trade normally. But since it’s already Friday and evening, it makes no sense to trade. So, one hour or half an hour before the nonpharm we close all positions and go to rest.
Here is such a chic non-farm trading strategy, do not thank.