Tips for Trading Nonfarm Payrolls

On the first Friday of each month the US Labor Department issues its Nonfarm Payrolls report. Among other labor-related data, that report provides the numbers of new US-based private sector jobs. The

So, rather than get tangled up in a complicated statistical analysis, do the obvious. That is think the way a trader would; draw support and resistance lines.

As Illustrated below, I have simply drawn a support and resistance line above and below. When the actual Nonfarm Payrolls hits a support, you can expect it to beat the consensus in the following release. When the Nonfarm Payrolls hits a resistance level, you can expect the upcoming report to come in below estimates.

Nonfarm Payrolls: Designing a Trading Strategy

Now that you have a sense where Nonfarm Payrolls might be headed, it’s time to design a trading strategy. That’s the simple part. If you expect Nonfarm Payrolls to be a beat, then you should have a bearish trade in place. That should be on pairs such as EUR/USD, GBP/USD or any pair in which the dollar is secondary. Look for resistance levels for entry before the release and establish a bearish target.

In pairs where the dollar is a primary like the USD/JPY or USD/CHF, it’s the exact opposite. Instead, you would gear up towards a bullish strategy.

Pop quiz: What’s your trading strategy if you’re expecting NFP to miss? Yep; you got it. You should prepare for a bullish strategy when trading pairs where the dollar is secondary. And, of course, it’s vice versa in pairs where the dollar is primary.

A Few Points to Consider

Before you start, here are a few points you’ll want you to consider before trading Nonfarm Payrolls.

Does the Trade Make Sense? Say you’ve come to the conclusion that NFP will go to a certain way. And you’re pretty certain how that could affect your trade. You’ll want to ensure that all other indicators, i.e. support/resistance and buy/sell signals, are there. Don’t just buy or sell because you expect a surprise or a miss. The trade has to make sense.

During a Crisis NFP is Impossible to Predict: As can be seen on the left side of the chart, there’s an awful lot of volatility. During an economic crisis, Nonfarm Payrolls often swings so wildly that you simply cannot rely on the support/resistance band.

Nonfarm Payrolls Generate Volatility: Let’s talk a bit more about volatility; you need to be prepared for it. Without preparation, even if you’re right, you could still end up hitting your stop loss. When a big miss or a spectacular beat occurs there is generally increased volatility. You will need to adjust your stop loss and trading strategy accordingly and quickly.

Do you want to create your own NFP chart? You can download the data directly from the Bureau of Labor Statistics. Lior created his chart in Excel using the numbers provided.

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