A Quick 50 Pips Off The NFP – What Can We Learn From It?

Guest post by  NewstraderFX

My trade room made a quick 50 pips trading Friday’s NFP report and here’s how it was done.

1. Plan For Different Scenarios. This involves understanding what the overall bias in price movement will be if the report is worse, equal, or better than the expected number. In this case, my opinion was that the dollar was likely to gain against the euro under any scenario because if the number was weak, the dollar would gain as stocks declined (the typical “risk off’ move). If the number was equal to or better than expected, the dollar and stocks would rise because the economic fundamentals would be so much more positive  for the U.S. than for Europe. Be aware that this is not always the case so it can’t be used at all times.
2. Special Situations. The European debt crisis and Wednesday’s job report from ADP (which came out far above all estimates) presented certain issues that had to be taken into consideration. For example, because there currently is a negative bias against the euro due to sovereign debt issues, traders were likely to be looking for any excuse to sell it.
3. Use Fibonacci. These retracement levels are extremely useful in finding entries and exits. However, Fibonacci can only be used effectively when you have the correct bias.
4. Be Patient And Wait For Your Price. I’m sure you’ve heard the old adage “buy low and sell high.” In this case, because I expected to sell the euro against the dollar, my goal here is to “sell high and buy low.” I never chase price movements in an attempt to get in on whatever momentum appears to be present; I always wait to get a “better” price, which is this case meant waiting for the euro to rise against the dollar.

On the EUR/USD 5 minute chart, I’ve place a fib on the first candle after the NFP. My goal is to wait for price to retrace to the 61.8 fib retrace level before selling. The stop is just above the 100 level and the target is near the low of the previous candle because that is where the market has traded the euro to recently, setting up a trade with better than 5 to 1 Reward/Risk ratio. As it happened, the entry occurred on the next candle and the target was hit on the candle after that.

If you would like to attend a free session of my trade room, contact [email protected] and I’ll send you an invite.