Trading the Non Farm Payroll Report Like a Savage Pip Friend: Part1
Written by Rob Booker
The Non Farm Payroll Report is released (generally) on the first Friday of the month at 8:30am Eastern US Time, and it contains information on the employment situation in the United States.
A strong Non Farm Payroll number reflects a robust, growing economy.
A weak number can mean that the economy is slowing down. The United States Federal Reserve considers this report an important influence on their monetary policy decisions. Because of this, the report is a major market mover, not only for currencies but also for stocks and bonds.
The US Bureau of Labor Statistics releases the report. This is the Web link:
Because this report is so influential, many traders including myself have tried to trade it in the short term for big gains – but this requires getting in on a move just seconds after (or before!) the report is released. The dangers of such trading include:
1. Broker unreliability: currency dealers historically have been unresponsive or even offline during the release of this report;
2. Speed problems: if you are not able to act super fast, trading right after a report can be next to impossible;
3. Slippage: order execution has historically been poor in the moments following the report;
4. Potential for huge losses: the report can move a currency pair 100 pips in just a few seconds – and this move can result in huge losses for traders who bet in the wrong direction, set their stops too wide, or who experience the problems mentioned above;
5. Greed: trading the NFP in the short term leads to a greedy, short term mindset, one that encourages traders to believe that they can get rich from trading one report in just a few seconds. Over the longer term, greed kills.
For 5 years I have believed that the Non Farm Payroll report can set the tone, and create a trend, for the rest of the month. If this is true, that means that a trader would not have to trade the report in the short term, with all the accompanying risks. Instead, a trader could open up a longer term trade late on Friday or Sunday or Monday, when the trading environment is calmer, and hold onto the trade for days or even weeks. These trades would have the potential for gains of 100 to 1,000 pips.
With this in mind, I have set out, with the help of Jacob the Intern, to discover a way to trade the report for the longer term, for huge amounts of pips. I hope that you will join in on the research.
1. Charts: We have captured screen shots of 4 years’ worth of NFP moves. For the GBP/USD, EUR/USD, and USD/JPY, we have provided you with both 60 minute and 15 minute charts that show you:
a. The move that happened after the report;
b. The move that happened for at least a week after the report;
c. The actual numbers from the report.
These charts are available for free download at:
2. This tutorial. You are reading it now. Thanks!
3. A Discussion Section at ForexFactory.com. This discussion area is meant to be a place where you can trade ideas about the NFP report, comment on the charts, submit ideas about systems that can be used to trade it long-term, and whatever else. This discussion forum can be accessed from the www.robbooker.com/NFP Web site.
4. The PowerNFP blog. This blog is accessible from the www.robbooker.com/NFP Web site and will contain updates about each new NFP report, including ideas for how to trade each new report for the longer term.
5. USD $1,000 Prize Money. I am offering USD $1,000 to an individual or team of individuals who can develop and test and offer to share freely on the www.robbooker.com/NFP Web site, using at least 4 years of data, a system for trading the NFP in the longer term. Details about the contest are available on the Web site.
We used Tradestation charts to complete our testing. Tradestation currency charts go back to October 2002 on all the major currency pairs, on time frames as low as 1 minute, which made the testing more accurate.
This tutorial provides:
1. Charts from the last 4 years of NFP reports, for the GBP/USD, USD/JPY, and the EUR/USD;
2. Test results from my own ideas for longer term NFP systems;
3. Ideas on where to go next to develop systems.
This eBook does NOT provide a complete, end-to-end trading system that you can use today. But it gets close to doing that. If you dedicate the time and effort to do your own research, you will likely improve greatly upon what I’ve done and discover some great ideas for trading the report in the longer term.
Last of all, you must test your own theories (or these theories) before you do any live trading. Make sure you prove or disprove your theories about movement in the market, before you risk losing any of your money. It’s simply not worth testing expensively, with real money.
Any articles, systems, strategies, reviews, ratings, news, research, analyses, prices or other information contained on this website, by Aboutcurrency.com, its partners or contributors, is provided as general market commentary and does not constitute investment advice. Aboutcurrency.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
Risk Disclosure: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.