Trade NFP is a process using NFP week news and Friday non-farm payroll report to predict where the price of a currency pair will move.
- 1 What is NFP Trading in Forex
- 2 How Does NFP Trading Work
- 3 Should I Trade NFP Week
- 4 Volatility and Trading Before the NFP
- 5 NFP Trading Hours
- 6 What is the Best Pair to Trade NFP
- 7 NFP Trading Strategies
What is NFP Trading in Forex
NFP trading is price prediction of a certain asset, like price of a currency pair or index, after a non-farm payroll report is published where payroll number affects the market movement.
Why the NFP Matters to Traders
If the NFP report publishes positive news and that means the employee numbers increases, the price of certain assets will rise in value that correlates with the U.S. dollar or U.S. stock market.
NFP matters to traders because the data influence the Forex market where U.S. dollar gains or lose strength. Consequently the currency pairs will react and traders can make or lose profits.
Here is an example of an NFP report where data published is better than previous and forecasted.
If the NFP report publishes negative numbers then the market will react negatively where U.S. dollar strength will decline and the stock market will lose its value.
Here is an example of an NFP report when the actual data is worse than previous and forecasted.
Trade NFP will include these data from the NFP report and open positions on the market accordingly.
Let me explain in more detail how NFP trading works.
How Does NFP Trading Work
I will use an example where the NFP report gives worse data than it was expected.
I will use the EUR/USD currency pair chart to see how the price will react on the NFP report.
On the chart you can see non-farm payroll dates when NFP is published and status of the market before and after the release.
Before the NFP report is released you can see the candle body is relatively small which means there is not much trading on the market. The reason is in the NFP release time where traders are not entering into trades too much and volatility decreases.
Traders are waiting and preparing for the NFP data to enter the market, buy or sell, depending on the data published.
After the NFP data is released you can see how the candle body increases and becomes larger. Large body means traders have entered into the market and changed the current price.
Because the news was worse than it was expected the EUR price starts to gain on strength and USD price declines.
If you participate in the NFP release with Forex trading then your goal is to enter into the trade at the time when the NFP news is published. And enter into the trade in the right direction.
In the example here you would need to enter into buy to make money because bad news for USD pushed EUR price higher.
So, the goal is to enter at the right time and in the right direction after the NFP report.
Should I Trade NFP Week
You will find two versions saying to trade NFP week and not to trade NFP week. And both versions are ok.
If you are conservative trader and you do not want to expose yourself to high market volatility which happens after the NFP report then you should stay away during NFP week.
Highly volatile market after an NFP report can be tricky and can pull you to make decisions and to trade that volatility. And it can happen that you lose a large sum of money if you enter with too large a lot size.
On the other hand if you want to trade highly volatile markets then there is news published during NFP week.
Check this image.
You can see several news stories before Friday’s NFP report. And those news are with high impact which also affects the market.
So, you can start trading from Monday and wait for the news release where ISM manufacturing PMI is released.
Then you have ADP non-farm employment change with high impact which moves the market.
And on Thursday you have news with unemployment claims which will affect the market. If the numbers are worse than expected that will be good for the USD currency and U.S. market.
You have three days that you can trade and make money based on the news published. And each of those news could give you a hint as to what NFP report will be on Friday. Because unemployment claims and ADP NFP are closely connected with non-farm payrolls.
So, if the ADP NFP and unemployment claims are good for the U.S. dollar then you can expect the NFP report to be good for the U.S. dollar.
Let me put these news on the chart so you can see what happens.
Check the image with all three news during the week before NFP release.
Chart with red lines represents the NFP week and blue lines represents news published which have an impact on the market.
Each of these news had an impact on the EURUSD pair where the price declined. Which means the U.S. dollar gained strength and EUR was losing strength against USD.
When you trade NFP over the week you can catch lots of good trades if you trade in the trend with the news published.
And on Friday when the NFP report came out the price continued moving down.
Volatility and Trading Before the NFP
If you check the volatility when the NFP report is published you will see that volatility increases because of market reaction to NFP data. Traders react on NFP data because currency pairs that include USD currency make a move depending on the NFP result.
When volatility increases you can easily get in the trade and get out. But what happens very often is that the volatility destroys a lot of accounts. And the main reason is in the too large lot size where traders want to make a lot of money on these moves. But when the price moves against them their account gets wiped out.
If you want to trade before NFP you will see that volatility is lower and the reason is because traders are waiting for the NFP release. They do not want to enter into the trade and get locked in the trade if the price moves significantly from their entry.
That means if they enter into the sell trade on EURUSD at $1.1234 and the price starts to move in the opposite direction. And when the NFP report gets out the price starts to move against them. They are locked with minus and the loss increases because after the NFP release the price starts to move fast.
So one option is to stay away from trading before NFP and open a trade after NFP release in the direction of the news.
Let me show you how that looks when the NFP report is released and how volatility increases.
NFP Report Volatility January 2022
When the NFP report for December 2021 was released the data was bad for the U.S. dollar. And that means EUR/USD currency pair price starts to rise in value.
EUR is gaining strength and USD is losing strength.
The chart shows how the market acted before NFP release. You can see that the candle’s body was smaller than candles after the NFP release.
That means the volatility on the market was smaller because traders did not want to trade before the NFP report. And if someone opened a sell order in the Friday morning he would start losing money immediately because the price started to rise slowly.
When the NFP report was published the price started to jump around which is visible as a candle with open and close price almost at the same price, but with large wicks.
After that the price continued to move upwards as a result of bad NFP data.
If you waited for the NFP data to be published you would see that the news is not good and you could enter into the buy trade where you would after one hour be in profit and several hours later even more in profit.
So, here is the conclusion not to trade before NFP, but to trade when NFP is released.
NFP Report Volatility February 2022
In February 2022 we had NFP data for January 2022 which was positive for USD and the market reaction was positive for USD currency.
If you check volatility before NFP was released you can see that the candle’s body was smaller than candles after the NFP data was published. That means the traders did not trade before NFP, but they wanted to wait for the data and then enter into the trade.
Half an hour after the NFP data was published the market started to reach more and candles with larger bodies were formed. This is a normal reaction to market data where traders enter into sell trade that sells EUR and buys USD currency.
NFP Volatility March 2022
In March 2022 when NFP data for February 2022 was released we again had a similar market reaction. Candles body before NFP data was smaller and traders avoided entering into the trades.
When NFP data was released the market reacted with larger candle bodies and the price was pushed down because of positive news for USD currency.
Traders backed up the NFP data and started to sell EUR currency and buy USD currency.
NFP Trading Hours
NFP trading hours are 1 hour before NFP release and 2 hours after NFP release.
If you check the charts of EURUSD for the first three months of 2022 you can see that the market started to increase volatility a little before NFP and after NFP report.
Volatility is presented as a larger candle body which means traders have started to open trades, buy and sell, which moved the price.
What Time Frame is Best to Trade NFP
The best time frame to trade NFP is the 15 minute time frame or M15 where each candle is created every 15 minutes.
The 15 minute candle time frame to trade NFP gives you insight when the price will return in the opposite way of NFP data and then change the direction and continue in the right direction.
The goal here is the price returning below previous support or resistance where lots of stop loss trades are set. They will be stopped out, but you will enter into the trade.
That reverse is the time when to enter into the trade. A 15 minute time frame is enough time to see how the market is behaving and enough to enter into the market.
Have in mind that the market will not return back so you can enter into the trade. Sometimes the price will move in the direction of news where you will miss trading opportunities.
But, in Forex trading, the goal is to make money and to rush and lose money. So it is better to enter at the right time rarely than at the wrong time more often.
What is the Best Pair to Trade NFP
The best pair to trade NFP is US dollar crosses like EUR/USD, but you can trade GBP/USD, AUD/USD, NZD/USD, USD/JPY.
EUR/USD is the best pair to trade NFP because it is the most traded currency pair on the Forex market and many traders are active during NFP release.
But, sometimes there is another currency pair better for trading and you can find out which one by checking currency strength meter that will tell you which currency is currently strong or weak which you can use in trading against USD.
NFP Trading Strategies
NFP trading strategies are:
- NFP + Currency strength meter – check which currency has the worse strength on the currency meter
- NFP Close Price where you wait the price to come back to close price of the M30 candle of the NFP
I will show you how each strategy works on the April 2022 NFP report where you will see how to start trading from the start of the week until Friday.
Trade NFP Strategy With Currency Strength Meter
Trade NFP with Currency strength meter where you use U.S.dollar strength and compare it with another currency which has opposite strength.
Check the current status of the currency strengths from the currency strength meter app.
What you can see is that Japanese YEN, JPY is the weakest currency in the market among 8 major currency pairs. The U.S. dollar is stronger so if the U.S. NFP report is positive then this would be a good trading pair.
EUR strength is also weak so this could also be a good trading pair, but JPY is much better because the strength of Japanese Yen is a much better choice to trade NFP.
If we check the current market status of the USD/JPY currency pair we can see that the market is behaving as the currency strength meter is showing.
What you can see is that the U.S. dollar is stronger and the price is showing that. The USD/JPY price has been rising for almost a month. And we will see what will happen this NFP week when each of the news is published.
There will be ADP NFP, Unemployment claims, Manufacturing ISM which will have an impact on the U.S. dollar strength.
Check the image below from the Forex Factory Calendar where you can see which news will be published this week and what is the Forecast and what is the previous result.
Here are the results after NFP week ended. We can see that news for USD was not 100% good where you can see some red results and some green.
We can say the NFP week was 50/50.
Let’s see what happens with the USD/JPY pair during NFP week.
Week started with red results for USD so the price stopped from rising. The first news on Monday pushed the price down. It stopped USD from rising further.
Tuesday results, JOLTS Job Openings were positive so we can see price rising making a bullish pin bar. But, that was not enough for the price to rise in value.
On Wednesday the bad news pushed the price further. ADP non farm change was not positive. It was neutral so the price did not see any rise. The price stalled until Thursday when new data was released.
Unemployment claims were red, which did not backup USD rising from the previous week. The price fell down even more.
And on Friday we had red NFP data with the unemployment rate positive. This was a small nudge for the price to recover, but that nudge was not too strong.
What you can see here the whole NFP week was not positive for the USD. It was somewhere neutral, but the price declined a little bit.
Next time when NFP week starts you can use the currency strength meter to find the weakest currency or strongest currency and compare it with USD. And find the best direction to trade where you back up that decision with the NFP news.
NFP Trade Strategy M15 Time Frame
In this strategy you can use the M15 time frame where you wait for the price to come back after the NFP report is published.
You expect the price to return back in the opposite direction of the NFP report. That means if the NFP is positive and the U.S. dollar rises in value you prepare and wait until the USD price returns down where you enter and then wait for the price to continue in the right direction.
Check the chart below where you can see the January 2022 NFP report. I have an open M15 chart where it is visible how the price reacted on the bad NFP report which means USD price should fall in value.
The goal here is to catch the wave of stop loss hunting where big traders like banks are moving the price in the opposite way and catch stop loss of others that are set below previous lows before the NFP report.
Because many traders do not expect the price will reverse down if the price starts to move up after the NFP release.
But, big boys in the Forex market return the price by closing long positions that return the market down and then again step in by going long again. In the meantime many traders are stopped out which helps the price to rise even faster.
You are catching the big move below where are stop loss is set by putting pending order.
Stop loss is below previous lows which you can see on the M30 time frame. You expect the price will not go below those levels.
Take profit is set close to previous highs because the price should reach those levels if the NFP report has a strong impact. And strong impact will happen if the NFP change in the actual values is high compared to forecasted and previous value.