Trading Non Farm Payroll Releases (NFP) Like a Professional Trader


Trading Non Farm Payroll Releases (NFP) Like a Professional Trader

The monthly NFP number is the most important and most widely anticipated of all economic events.

It is widely accepted that currency traders can make massive gains trading non farm payroll releases when executed properly.

However, you can make great returns on low risk trading any asset class.

The most important part is understanding what trading non farm payroll (NFP) reports is all about.

Let’s get started with this complete guide to NFP.

 

Understanding Non Farm Payroll Reports

What is the non farm payroll release all about?

Once a month the Bureau of Labor and Statistics (BLS) publishes a monthly report of private jobs in the US economy.

The official report is released the first Friday of the month at 8:30AM EST.

There are three components, all which come out at the same time.

Each of these non farm payroll components is for the previous month.

So the first Friday of July, you will see labor statistic for the US for the month of June.

Here are the three key components of the non farm payroll report:

  1. Non Farm Payroll number in 000’s – change in number of people employed in the US in previous month (this is the most watched number, but only 1/3 of the picture)
  2. Unemployment Rate – percentage of the total work force that is unemployed and actively seeking employment
  3. Average Hourly Earnings – change in the price business pay for labor, excluding farming industry (it is too volatile and inconsistent)

Now that you know the components, I will show you how to form a market sentiment next.

 

 

Building Bullish or Bearish Bias on Non Farm Payroll Numbers

There are two main comparisons you must make the second the numbers are released:

  1. How did each component perform relative to the past month release
  2. What did each component do against the street expectations (analysts)

New traders forget these two rules, and often get fascinated with just the headline jobs number.

However, this is only one sixth of the big picture.  For this reason most new traders struggle with this report in a big way.

Here is how to build bias using the non farm payroll numbers.

 

The US Dollar is most Bullish When:

  1. Non Farm Payrolls come out higher than expected and above last month’s numbers
  2. Unemployment rate drops against expectation and below last month’s numbers
  3. Average hourly earnings increase against expectations and above last month’s numbers

This means that there are more jobs added, less people are unemployed and employees are being paid higher salaries.  A beat in all three categories.

While this situation is rare to happen simultaneously, it represents the most bullish scenario. In this example the US dollar would increase, along with equities.

Mean while gold is expected to drop, as it loses it’s value as a store of value and safety asset.

The exact opposite would indicate a very bearish US dollar forecast and opposite movement in other assets from above.

 

 

Example of Reading a Non Farm Payroll Report

Now let’s practice analyzing the NFP numbers.

Here is a non farm payroll report from the past, it does not matter when.

Have a look at the numbers below.

You can see at 8:30AM EST we had a very strong non farm payroll report:

  1. Average hourly earnings were up 0.3% vs an expected 0.2% and above 0.1% prior month (bullish)
  2. Non-farm employment change was 223k jobs added vs an expected 189k and 159k prior (bullish)
  3. Unemployment rate came out at 3.8% vs 3.9% expected and 3.9% prior (bullish)
Non Farm Payroll Report Sample

Non Farm Payroll Report Sample

This was an example of a very bullish report for the US dollar.

You would expect to see a rally on the dollar right?

Well it depends.

The most important aspect of trading these reports is resisting to have a bias and watching the price action.

US dollar should rally, but if the institutional traders use the strength as an opportunity to sell large positions the market may drop hard.

Your job is to have expectations, but not to live and die by them in attempt to be right.

Your job as a trader is to be profitable, not right!

 

 

Where to find the Non Farm Payroll (NFP)?

Before we jump into trading non farm payroll reports, let me show you where to get data first.

There are many sources that release the report within a few seconds of the official time.  Most are free.

By far the best one is ForexFactory, because it provides the actual numbers and charts for visual interpretation.

When numbers come out, everything moves fast and you want it to be accurate and visual.

In fact, the sample chart above was snipped from ForexFactory.

However the drawback is that data will be delayed a few seconds.

If you want a professional data feed that is very cost effective, checkout the best news feed for trading page here >

 

 

Trading Non Farm Payroll Strategy

Now it’s time to discuss the trading strategy for non farm payroll reports.

I saved this for last, because it is the most important and also the most simple.

Anything that is complex will have lower ratios of success – a rule that never fails in any business.

There are three moves post news announcements of any kind:

  1. Impulse move – very fast, driven by algorithmic trading and not tradeable manually
  2. Pullback move – once algorithms are all in and retail gets stuck at the peak of a move, stops are run back in the opposite direction
  3. Extension – once retail traders are stopped out, the institutional money comes back in and takes the trend in the original direction (this is where we make our move)

Here is an example of a news trade on a past non farm payroll release:

Non Farm Payroll Trading Strategy Example

Non Farm Payroll Trading Strategy Example

This chart would be inverted for a bearish trade news scenario.

But does the report dictate where the market goes with certainty?

 

 

Trading Non Farm Payroll Releases – Conclusion

At the end of the day you need to understand that what the report reads and what the market does are not perfectly correlated.

I’ve seen very bullish NFP reports lead to massive sell offs in the US dollar and equities. Also, I have seen the exact opposite scenario.

However, I’ve been trading for nearly 20 years and I have traded through a lot of these news events.

This is why the most important thing for you when you are learning is to be part of an active community of live traders – like us.

Nothing substitutes experience and screen time.

So stick with it and trade some of the non-farm payroll reports with us to experience the TRADEPRO edge.

 

If you want to join us in our live trading room, check out the Day Trader package here >

If you prefer to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >


The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.