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Should You Trade The NFP
Written by: PaxForex analytics dept - Thursday, 09 March 2017 0 comments
The Non-farm Payrolls (NFP) are among the biggest market movers in the forex markets. At the first Friday of every month, the U.S. Bureau of Labor Statistics releases the numbers for new job creation in the US – along with other labor market data. The data includes all paid workers, excluding government employees, private households, non-profit organizations and the farming industry. It is an important indicator for how well the US economy is doing and investors watch this report closely.
Traditionally there are many ways of trading the news including breakouts , news fades, and trading market dips. Trading NFP can be an exciting and often profitable pursuit for traders willing to enter into a volatile market. Regardless of the strategy taken, it is always important to keep an eye on risk / reward levels while minimizing the use of leverage in case the event volatility moves the market against your trade. With this in mind, traders should expect increased volatility and plan their strategy for the day accordingly.
Trading news releases can be very profitable, but it is not for the faint of the heart. This is because speculating on the direction of a given currency pair upon the release can be very dangerous. Fortunately, it is possible to wait for the wild rate swings to subside. Then, traders can attempt to capitalize on the real market move after the speculators have been
wiped out or have taken profits or losses. The purpose of this is to attempt to capture rational movement after the announcement, instead of the irrational volatility that pervades the first few minutes after an announcement.
As always, what is exciting to some traders will not be so for others. So there are traders that will not trade the non farm payroll and here are some of their reasons for not doing so: they think, its gambling trying to guess which way the market is going to move when the news comes out. The tendency of price to whipsaw means that sometimes your trade direction may be right but you’d get stopped out prematurely when price whipsaws and hits your stop loss. Spread increase, which means your trading costs go up as time comes new to the non farm payroll news release.
Regardless of whether you intend to trade the news or maybe stand aside; remember NFP can be an exciting and will often bring unexpected volatility. If you do decide to trade, stick with your news trading plan and strategy, and always keep an eye on risk / reward levels. As a final note, don’t take trades just before the announcement trying to predict which way the forex market will spike. Even if you guess right, you’re likely to experience extreme slippage, and therefore your risk is unknown. Better to wait for a valid trade signal like the one provided above, and trade the trend that happens after the spike.