This is a guest post by FX Street there website is FXStreet.com.
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What are non farm payrolls (NFPs)? The non-farm payrolls report, or NFP, is published by the US Department of Labor Statistics. Usually the first Friday of each month. It is usually a measure of the state of the US economy. This report is important because US is the largest economy and its currency (USD) is the global reserve currency. Several economies link the value of their currencies to the reserve currency, several commodities like gold and oil are denominated in terms of the reserve currency and the debt of the local economy is measured in terms of its own currency. The NFP report, because of its importance for the reserve currency, tends to disturb all markets: currencies, stocks, treasury bonds, interest rates and commodities. It does so immediately after the publication of economic data and sometimes drastically. The employment report consists of two surveys: the household survey and the business survey. The first survey uses a methodology of sampling the data provided by private citizens. It is not based on asking how many jobs they have or what the quality of those jobs is. The second survey uses a methodology for sampling the data offered by businesses. It is based on the number of employees each company has. It would be impossible for the government to survey every citizen and every contractor every month. Therefore, NFP surveys are based on small samples that are used by statistical engineering to produce a figure for the national labor market. TECHNICAL ANALYSIS Over the years I have used two strategies to identify short-term opportunities in the publication of non-agricultural payrolls. 1. RANGE STRATEGY (oscillation) This strategy is implemented before publication. The goal is to superimpose the average daily range with levels of support and resistance. For example, suppose that the EUR / USD moves in a range of 110 pips per day. About 30 minutes before payrolls, measure 110 pips on the current market price and 110 pips under the current market price. Mark each one on your chart. Then look for the monthly or weekly reversal pivot points (R2 or S2) and around the psychological numbers (such as 1.0899999). Ideally, there will be an overlap of two or more levels of support and resistance. If the price reaches one of these levels, look for the reversion into the range. The logic is that if the market has moved too much, it will normalize once the initial traders’ emotion has calmed down. 2. CONTINUATION STRATEGY (speculation) This strategy is implemented after publication. It is based on a continuation pattern. The objective of this strategy is to operate in the direction of the initial reaction of the market to the news. If the main NFP figure creates green candles on the 1-minute chart, focus on buying the pair in the setbacks. After a few minutes, you will begin to see some red candles. Measure the distance between the pre-pay price and the maximum, using a Fibonacci study. Aim to buy in the area between the setbacks of 38.2% and 61.8%. Your operation should be almost even after 5 minutes. If you have not won by then, you might consider retiring early, beyond the number of pips. However, stop orders will be below the 100% line, which is generally less than 25 pips away. Your target will be the support / resistance entry point identified in the pre-post configuration. The opposite tactic applies in front of a bearish movement. TIP: Avoid the ‘Straddle’ strategy Some investors use a “style of options” strategy, which in my view do not make sense in the forex market. This strategy places orders on and under the price just before publication. In general it is done with the logic of ‘one cancels the other’, and therefore if one order is activated, then its position enters the market and the other is canceled. The objective of this strategy is to operate immediately after publication and in the direction of initial market movement. I believe that this strategy has several problems: Fluctuations: It happens when the market is pushed for a few seconds in one direction and immediately afterwards it reverses and continues in the opposite direction. It can go through a number of reasons such as poor information regarding the figure by the media, speculation of the investors about the publication, but also when the market over a large reversal of the previous month and sometimes spend a few seconds more To obtain that figure since the main figure is published first. Slippage: The non-farm payrolls report can create market movements with high volumes. Slippage can occur under such conditions. It has to do with postponing the positioning of orders and then fill them in the market. In general, this process requires only one second. However, after non-farm payrolls, it may take 5-10 seconds and the price could have moved several pips during that time period. Slippage is also not the fault of the shareholders, it is simply operating under unfavorable conditions (risk). This is a guest post by FX Street you can follow them on twitter at @FXStreetNews and read more on their website at FXStreet.com. |