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This simple non-farm payroll forex strategy allows you capitalize on the most volatile moments in the forex market. On the first Friday (sometimes the second Friday) of each month at 8:30 AM EST the non-farm payroll (NFP) data is released. This is the most trusted source traders, investors and institutions use to track the US employment situation, which sheds light on the strength of the economy and potentially inflation. The report causes a massive reshuffling in positions, and seeing a 100 pip movement in the GBP/USD in the moments following the announcement is not uncommon.
On a typical Friday, the GBP/USD will move approximately 100 pips (10-week average as of Oct. 22, 2013). On a non-farm payroll release day, intraday movement can be much larger. For current weekday and hourly volatility see the Daily Forex Statistics page.
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Non-farm Payroll Forex Strategy Setup
The strategy uses the GBP/USD and a 15-minute chart. A 15-minute chart allows the initial volatility to subside, but still allows us to capture a large potential move once the market participants make a more rational decision about whether they want to buy or sell based on the news. This is the trend this non-farm payroll forex strategy attempts to capture…the rational trend which follows the initial surge.
The EUR/USD could also be used, but since the GBP/USD usually has a bigger daily range than the EUR/USD it provides great opportunity. A 5-minute chart can also be used, but is prone to more false signals.
Non-farm Payroll Forex Strategy Rules.
1. Do nothing for the first 15 minutes after the NFP announcement. A wide-ranging price bar will occur between 8:30 to 8:45 AM EST. This bar is of no concern.
2. Wait for an inside bar. An inside bar is a 15-minute price bar where the high and low are completely inside a prior bar range.
Figure 1. Wide Ranging and Inside Bars for Non-Farm Payroll Forex Strategy – 15-Minute Chart
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Figure 1 shows a wide-ranging bar followed by an inside bar. The inside bar doesn’t always immediately follow a wide ranging bar. Depending on volatility and the strength of the initial push, we may need to wait a couple bars in order for an inside bar to occur. The inside bar doesn’t need to be inside the wide ranging bar either, we just need a bar that is inside another bar. This shows us the market has calmed down, and is likely to soon choose its more rational direction.
3. The high and low of the inside bar become your trade triggers. If the price rises above the high of the inside bar, buy. If the price drops below the low the inside bar, sell.
4. Place a 30 pip stop initially, or place it below the most recent low if you bought, or above the most recent high if you sold. But your stop should not exceed 30 pips.
Figure 2. Non-Farm Payroll Forex Strategy Entry and Stop Example – 15 Minute Chart
[You must be registered and logged in to see this image.]
In this example, the initial inside bar which followed the wide ranging bar is used for the trade trigger. Following the initial inside bar, two more inside bars followed. This basically created a range, so in this case waiting for the breakout of that range was prudent. Either of these other inside bars could technically be used as trade triggers though.
The horizontal blue dotted lined shows the entry, which is set a pip or two above the inside bar high. The dotted line in the lower part of the screen marks the stop-loss order. Initially the stop loss is set to 30 pips, but in this case it was moved up to just below the recent lows, reducing the risk to 25 pips.
We do not need to wait for a bar to close in order to enter a trade. As soon as the high or low of the inside bar is pierced, take the trade.
5. Exit 4 hours after your entry. This is a timed exit. Once the trend begins it will often last for about 4 hours. If you enter at 9:15 AM, exit the trade at 1:15 PM EST. Exit at 2:00 PM EST even if it has not been 4 hours since your entry. By 2:00 PM other factors are likely to start affecting the pair, and most of the movement based on the NFP number will be exhausted.
6. Don’t take more than 2 trades. If you get stopped out on 2 trades, the movement is too choppy. Stash the strategy away until the next non-farm payroll number, or other high impact news release.
7. This step is optional, but you can implement some sort of trailing stop to avoid giving up your profit if the trend reverses while holding the position. As the trend progresses, move the stop to just below recent swing lows if you are long, or just below recent highs if you are short.
Figure 3 shows the whole GBPUSD trade for the October 22 2013 Non-farm payroll release. In a rare event, the data was released on a Tuesday due to the US government shutdown on the Friday the data was supposed to be released. Ultimately the trade produced about a 54 pip profit at the 4-hour time target. Original risk was 25 pips, but could have been trailed up, locking in a profit, after the first consolidation. Sometimes wins will much bigger, and other times slightly smaller.
Figure 3. NFP Forex Strategy in GBPUSD with Entry Stop and Timed Target – 15-Minute Chart (click to enlarge)
[You must be registered and logged in to see this image.]
Non-Farm Payroll Forex Strategy – Considerations and Pitfalls
Overall I have been using this strategy–or one very similar to it–for than 5 years, and find it to be a reliable strategy. It can experiences strings of losses though. The worst days are when 2 false signals occur in one day, which means 40 to 60 pips could be lost. This is rare, but can occur. Although, on any choppy day a trend following strategy is likely to experience more losses. Profits are usually much larger than losses on winning trades, which should more than offset losing trades.
If the GBP/USD doesn’t move much following the non-farm payroll announcement, then the news release is likely a “non-event” and the strategy should not be employed. Ideally we want to see a 50+ pip spike (up or down) following the announcement, which lets us know there is some reshuffling of positions and a trend is likely to ensue.
This strategy can be used on other major news releases, such as interest rate announcements, assuming there is a strong burst of activity following the announcement, and a valid trade signals occurs like in the example above.
As a final note, don’t take trades just before the announcement trying to predict which way the 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.
This strategy is included in the The Forex Trading Strategies Guide for Day and Swing Traders eBook. Read the book for way more strategies and information you can use to conquer the forex market.
On a typical Friday, the GBP/USD will move approximately 100 pips (10-week average as of Oct. 22, 2013). On a non-farm payroll release day, intraday movement can be much larger. For current weekday and hourly volatility see the Daily Forex Statistics page.
—-
Be informed of daily upcoming news releases, as well as getting comprehensive analysis on multiple markets before your start your trading day. Sign up for free delivered to your inbox each morning.
—–
Non-farm Payroll Forex Strategy Setup
The strategy uses the GBP/USD and a 15-minute chart. A 15-minute chart allows the initial volatility to subside, but still allows us to capture a large potential move once the market participants make a more rational decision about whether they want to buy or sell based on the news. This is the trend this non-farm payroll forex strategy attempts to capture…the rational trend which follows the initial surge.
The EUR/USD could also be used, but since the GBP/USD usually has a bigger daily range than the EUR/USD it provides great opportunity. A 5-minute chart can also be used, but is prone to more false signals.
Non-farm Payroll Forex Strategy Rules.
1. Do nothing for the first 15 minutes after the NFP announcement. A wide-ranging price bar will occur between 8:30 to 8:45 AM EST. This bar is of no concern.
2. Wait for an inside bar. An inside bar is a 15-minute price bar where the high and low are completely inside a prior bar range.
Figure 1. Wide Ranging and Inside Bars for Non-Farm Payroll Forex Strategy – 15-Minute Chart
[You must be registered and logged in to see this image.]
Figure 1 shows a wide-ranging bar followed by an inside bar. The inside bar doesn’t always immediately follow a wide ranging bar. Depending on volatility and the strength of the initial push, we may need to wait a couple bars in order for an inside bar to occur. The inside bar doesn’t need to be inside the wide ranging bar either, we just need a bar that is inside another bar. This shows us the market has calmed down, and is likely to soon choose its more rational direction.
3. The high and low of the inside bar become your trade triggers. If the price rises above the high of the inside bar, buy. If the price drops below the low the inside bar, sell.
4. Place a 30 pip stop initially, or place it below the most recent low if you bought, or above the most recent high if you sold. But your stop should not exceed 30 pips.
Figure 2. Non-Farm Payroll Forex Strategy Entry and Stop Example – 15 Minute Chart
[You must be registered and logged in to see this image.]
In this example, the initial inside bar which followed the wide ranging bar is used for the trade trigger. Following the initial inside bar, two more inside bars followed. This basically created a range, so in this case waiting for the breakout of that range was prudent. Either of these other inside bars could technically be used as trade triggers though.
The horizontal blue dotted lined shows the entry, which is set a pip or two above the inside bar high. The dotted line in the lower part of the screen marks the stop-loss order. Initially the stop loss is set to 30 pips, but in this case it was moved up to just below the recent lows, reducing the risk to 25 pips.
We do not need to wait for a bar to close in order to enter a trade. As soon as the high or low of the inside bar is pierced, take the trade.
5. Exit 4 hours after your entry. This is a timed exit. Once the trend begins it will often last for about 4 hours. If you enter at 9:15 AM, exit the trade at 1:15 PM EST. Exit at 2:00 PM EST even if it has not been 4 hours since your entry. By 2:00 PM other factors are likely to start affecting the pair, and most of the movement based on the NFP number will be exhausted.
6. Don’t take more than 2 trades. If you get stopped out on 2 trades, the movement is too choppy. Stash the strategy away until the next non-farm payroll number, or other high impact news release.
7. This step is optional, but you can implement some sort of trailing stop to avoid giving up your profit if the trend reverses while holding the position. As the trend progresses, move the stop to just below recent swing lows if you are long, or just below recent highs if you are short.
Figure 3 shows the whole GBPUSD trade for the October 22 2013 Non-farm payroll release. In a rare event, the data was released on a Tuesday due to the US government shutdown on the Friday the data was supposed to be released. Ultimately the trade produced about a 54 pip profit at the 4-hour time target. Original risk was 25 pips, but could have been trailed up, locking in a profit, after the first consolidation. Sometimes wins will much bigger, and other times slightly smaller.
Figure 3. NFP Forex Strategy in GBPUSD with Entry Stop and Timed Target – 15-Minute Chart (click to enlarge)
[You must be registered and logged in to see this image.]
Non-Farm Payroll Forex Strategy – Considerations and Pitfalls
Overall I have been using this strategy–or one very similar to it–for than 5 years, and find it to be a reliable strategy. It can experiences strings of losses though. The worst days are when 2 false signals occur in one day, which means 40 to 60 pips could be lost. This is rare, but can occur. Although, on any choppy day a trend following strategy is likely to experience more losses. Profits are usually much larger than losses on winning trades, which should more than offset losing trades.
If the GBP/USD doesn’t move much following the non-farm payroll announcement, then the news release is likely a “non-event” and the strategy should not be employed. Ideally we want to see a 50+ pip spike (up or down) following the announcement, which lets us know there is some reshuffling of positions and a trend is likely to ensue.
This strategy can be used on other major news releases, such as interest rate announcements, assuming there is a strong burst of activity following the announcement, and a valid trade signals occurs like in the example above.
As a final note, don’t take trades just before the announcement trying to predict which way the 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.
This strategy is included in the The Forex Trading Strategies Guide for Day and Swing Traders eBook. Read the book for way more strategies and information you can use to conquer the forex market.
