NFP Report: to Trade or Not to Trade?
Is trading around news a good idea?
Alright, so the recent podcast episode has inspired a bunch of traders to start looking at trading news releases…
And the next NFP is in one week. (2nd Feb)
So, let’s explore…
How to trade the NFP report? Should I trade it at all?
Like it or not currency pairs are driven by macroeconomic factors.
We can fill our charts with Fibonacci lines, oscillators, Ichimoku clouds, Bollinger bands, etc., but ultimately, it’s the major economic events that dictate the general trends.
Enter Non-farm payrolls.
NFP is a monthly report released by the US Labor Department’s Bureau of Labor Statistics.
As a rule, it comes on the first Friday of every month at 8:30 AM ET.
The NFP report covers about 80% of US jobs, including employment figures in manufacturing, construction, and goods. The extensive data includes the unemployment rate, job growth, average hourly earnings, and other employment stats.
The NFP data excludes farm employees (clues in the name..), government employees, private household employees, and those working for nonprofits.
NFP is a big thing because it reflects the health of the US economy.
You know how it goes: more jobs means the economy does well, and that’s a boost for the greenback.
Here is the performance of the unemployment rate – that iceberg is the surge in unemployment during the COVID-19 pandemic:
How Do USD Pairs Behave During NFP Week?
USD-related pairs can be subdued before the release, as traders wait to see if there’s any unexpected change in the number before positioning.
It’s after the announcement that all the spikes happen (and when Aatu trades his edge.)
Here’s the EURUSD on 8th December 2023:
Sometimes, the report may lead to the formation of a new trend for the day ahead.
Such was the case on 3rd November 2023, when NFP data was disappointing.
Ok, so should you trade it?
For most traders, I think that the answer is no.
It might not be what you want to hear but for most, the biggest challenge in trading is overtrading, discipline, and getting sucked into trades they don’t want to take.
I believe news releases can exaggerate that, FOMO is amplified, you’re forced to make quick decisions, and you can get caught out quite quickly.
Far better to plan how you might trade hours after the event if a particular level gets tested or a pattern emerges.
Anticipating and hypothesising different scenarios and plays helps avoid reactive trades and prepares you for good potential setups.
So, IMO it’s better to use it as a catalyst that may create a tradable opportunity, rather than trying to trade the release itself.
Maybe it sparks a new trend and you can take the first pullback play.
Or perhaps it does a V-shape reversal triggering an afternoon breakout.
You get the idea…
There’s no right or wrong, and obviously, Aatu trades news releases very successfully, but remember he’s well-capitalised, very experienced, and puts in a lot of research to get the results.
So, give it some decent thought before diving into news trading.
Your edge might be elsewhere…