5 Notes for Non-Farm Payrolls Trading

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The release of the American Non-Farm Payrolls is a circus in the forex market. Here are 5 notes to watch out for in every Non-Farm Payrolls release during the financial crisis:

Note number 5 is the most important one – the knee jerk reaction.

Image credit: clementine gallot on Flickr.

  1. New traders – stay away: Trading during this volatile period is very risky. Take a break and enjoy the weekend.
  2. Action before the release: Strange moves begin in the markets well before the release at 13:30 GMT. This usually reflects the expectations – expectations which aren’t necessarily met, and they can lead to a counter reaction afterwards. Jittery trading intensifies with the release of the Canadian employment figures, an hour and a half before the American ones.
  3. Friday effect: Strong moves in a certain direction – either dollar strength or dollar weakness, can be seen hours after the release, usually in the last hour of the London session – between 16:00 to 17:00 GMT. This is the move that will determine the close of the week, and thus have a real long term effect. This is the full reaction.
  4. Technical barriers can be broken – support and resistance lines, uptrend support or downtrend resistance lines can be breached around the release of the NFP. This is usually only temporary – the graph returns to normal after a while, and these lines are respected again.
  5. Initial reaction is wrong: the initial reaction to the release is in the wrong direction: the knee jerk reaction is usually “normal”: good data yields dollar strength and bad data yields dollar weakness. This is very temporary! We are still in the global crisis, and the risk factor rules. So, minutes after the “normal” reaction, the risk factor kicks in and eventually the opposite happens: good data yields dollar weakness (risk appetite), while bad data yields dollar strength (risk aversion).

These are my tips. I’ll be happy to hear more.

Further reading: a report about last month’s terrible employment figures.

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

47 Comments

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  2. Kebaya Mwamba on

    Thanks for the tips. I think i will stay out from this news 🙂

  3. You didn’t make a good argument for people to stay out. The potential for gain out weights the potential for loss.

  4. You have good points there. Forex is a risk in the first place. Trading the NFP with a good risk/reward ratio is indeed possible. Ever heard two pending orders?

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  7. ”Cowards die many times before their DEATH”.”Look before you leap”.That’s my take on this,thanks for your warning but i shall trade NFP.

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  9. T.L. Stevenson on

    The “Knee-Jerk” initial reaction that is almost always in the wrong direction can be best explained as the syndicates taking their position. If a bank puts in a shit-ton of money in either direction, it will temporarily drive price the wrong direction as supply and demand for the pair reacts to so many large positions being taken at once. Wait for all that to finish, then go in the same direction as the banks (usually the correct logical direction.) Meaning if the price shoots up after the announcement, I don’t go long. Instead I look for a new LOW after that and I go short. This trend usually continues into the next week. Look up Volume Spread Analysis. Hope this helps

  10. Well nobody is clairvoyant so nobody knows what the real number is going to be. I do know that the “clairvoyants” expect a very good number, so that is alreay built into the price. You are always risking capital no matter when you trade, so the risking argument against trading NFP does not cut it with me. If the numbers are merely good or in line EURUSD will experience a rally or a relief rally, respectively. Dollar bulls would have to hit a home run to take this thing out of range. I am in long @ 14315, with a stop @ 1.4257. Risk vs Reward seems appropriate. I know is risky I am prepared to take the risk and lose.
    Just my humble opinion

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  16. Yes! I have learned my lesson. Never be caught in a trade during the NFP result. Best to watch the circus from the outside.

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  23. Thank for the notes, it reminds us to be careful not a coward.. a good trader must be brave to take a decision after thinking about it with one’s eyes open.

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  25. THANK,S FOR YOUR INFORMATION MAY GOD BLESS ALL YOUR ENDVOUR .PLS NFP IS IT LONG OR SHORT.

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  30. Kenkonsult on

    I think you are right. One thing a good trader should avoid is guesswork. Tips for newbies..make sure you apply triple screen trading technique which must include your H4 time frame. One thing for sure is that the market will either go upwards or downwards after all the brouhaha but the H4 time frame will enable you make a safe decision. Best thing to do is to allow the jerk take place and patiently allow the storm to cool down,then look to trade in the market direction an hour or two later.

  31. Kenkonsult , thanks for your comment. The four hour chart is indeed a good scope for this event.

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  33. thank, for yor info…this will make me carefull for the reaction in the market and be plan for that…

  34. ken mwangi on

    Surely i will have to be careful with both the releases. Thanks with your advice

  35. its alwz right 2 be outside to allow d mkt finish its madness b4 entry to pik pipsola.

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  40. littlekoala on

    Thanks for your 5 notes, Yohay. I am a newbie, so what i wanna ask is from your point of view, which one that usually the winner, the risk appetite or the risk aversion?