Learn To Trade The Nonfarm Payrolls Announcements
NFP or the nonfarm payrolls is among the most anticipated releases in the US market and traders wait for it. This report release is a critical indicator of the US market's entire economic health. This report showcases the total number of paid individuals except for farm employees. Along with the nonfarm people, it also excludes government employees, private households, and NGOs.
This is an important catalyst that can shake the market in both bullish and bearish ways. Once the figures are in the market, all traders, speculators, investors dig their eyes into it.
This report then decides where the market will move and as per the trend, traders decide their move. Hundreds of thousands of people are analyzing the nonfarm payrolls reports with attention. Even if everything goes well as per the expectations, it tends to create a lot of boom in the market.
When Nonfarm Payrolls are released?
The government releases the nonfarm payrolls reports on the first Friday of every month. This report is available an hour ago the market opens which is around 8:30 am as per the New York time. The report's release date may vary due to public holidays or other reasons.
As the markets are now open for 24 hours trading, the impact of the nonfarm payrolls spreads very fast. This tends to make the forex market volatile as the sentiments are high.
Analyzing the reports:
If you are a beginner and wondering how to analyze the nonfarm payrolls then we have got you covered. There are a few major aspects that you need to keep in mind while reading the reports. To make it simple, here are some key considerations over the NFP report:
Higher payroll stats
If you get to know that the report's figures are on a positive and higher side, then the economy is good. This signals that the US's economic health is solid and we are on the growth track. People with jobs and money are the biggest contributors to this type of result.
This means that more employment opportunities are coming for the people of the US. In this report, foreign investors and traders seek the exact number of new jobs. For example, the addition of at least 100K jobs per month will bring a positive outlook to the economy. Along with this, if the numbers are more solid and promising then it will help the dollar to take a boost in the market.
Even if the reports are as per everyone's expectation, it will cause mixed reactions in the market. Not all traders and investors plan their move in the same what that's why this thing happens. When the reports are as expected then traders dig down into its sub-components.
This practice helps the traders to gain certain insights or direction in the market. The unemployment rate is a major sub-component of the report that everyone reads. If the unemployment rate is on the surge, the investors will favor other currencies. And on the other side, if the unemployment rate drops, then investors will favor the dollar.
If the figures are on the lower side than expected, it will cause a negative impact. Traders and investors will then favor other currencies in the forex market. If the decline is somewhere below the mark of 100K jobs, then the US economy is not growing. In such conditions, the traders, institutional players support high-yield currencies.
How to trade on it:
Now, it's clear that the release of this report brings in high volatility in the US market whatsoever. To trade on such volatility, you need to know some simple market conditions.
The market sentiments will change as per the report's performance and you need to know this. On this note, let's explore how to grab the opportunity to trade on NFP payrolls and make profits.
Skipping the initial move
The first and you can call it the safe move is to wait and see how the market reacts. When the nonfarm payrolls is out, you first notice how traders are reacting right after its release. At this level, the initial knee-jerk effect will be at its peak and here you need to 'fade' the initial decision.
For example, if the payroll results flourished the expected results, the USD will get a boost. As compared to other currencies, the dollar will trade for higher due to this. But, contrary, if the GBP rallies in the market, then it will dominate the dollar's value.
When you fade such a move at the initial levels, you can avoid a lot of volatility in the market. As this initial rally will continue for only a few minutes, it is easy for you to wait for it to end.
If such a condition arrives in the market, traders can make money by taking short positions. Continuing with the above example, a trader can short-sell the GBP/USD with a stop loss on it. On the other side, if the market drops after the release of the report, then you can buy a position with a stop loss.
The second most popular approach is to trade the market according to the trend. In this condition, the traders and investors assume the initial position is correct. If the market is in a bullish way, it will be the pivot for the whole day. On the other side, if the market is on the bearish trend, then it will be following this trend.
In such a scenario, traders and investors check the former performance points. With the previous reference point, traders confirm the new trend. If the new market move broke yesterday's record, then traders will accept a bullish move.
With this strategy, traders need to bear more risk as they will be trading on the initial wave of the market. But, if the traders are confident about the move, they can make good money out of it. If you are a beginner, you can go for the above strategy to ride on the market's movement with safety.
No matter which of the above strategies you choose to trade with, risk management is vital. Whether you are a beginner or an intermediate, you need to have a safety strategy. Regardless of fundamental analysis and technical analysis, the market can go wild. And, this volatile movement is under nobody's control in the forex market.
So, it's important that you have a risk management strategy to provide extra safety. Make sure you take the correct stop loss positions to reduce the risk as much as possible.
Trading on the nonfarm payroll report is rewarding but you need to know it very well. If you are a beginner, ensure you read about the investment strategies as much as possible to make profits. You need to avoid taking decisions under any influence as the factors may change in no time.
Stick to any one strategy and prepare your plan around it for higher profitability in the FX market. Trading the NFP payrolls is a good forex trading strategy and you can go for it for sure. Once you try it a couple of times, you will get a much better idea about the NFP payrolls trading.
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