NFP Non Farm Payrolls News Strategy

With US Non-Farm Payrolls, pre-release price action for EUR/USD has been choppy as one would expect. Typically this key data release produces a substantial increase in volatility as fundamentally driven traders who are either lightly positioned or have not yet committed to the market jump in after the data release at 14.30 CET. 

Using EUR/USD as my trading vehicle, I believe that the best way to approach these ‘big news’ days is to wait until after the release of the data rather than taking a position and holding it over the release. What often happens is once the data is released markets often see a knee-jerk reaction as fundamentally-driven traders take a position, particularly if the number is significantly stronger or weaker than the market consensus. However, perversely as it may seem, the markets have a habit of seeing a very powerful movement in the OPPOSITE direction to the initial post-release movement, much to the frustration of those who have taken a position based on the data.  To take advantage of just such a move, I like to follow this three step process.

1) Just prior to the release, I record the price of EUR/USD. This point will be known as the ‘news origin price’ and will be my entry price should the market generate a ‘significant’ movement after the release.   

2) I then calculate price levels which if hit would constitute a ‘significant’ movement due to the news which would tell me that new money is being committed to the market. I would say that any movement which sees the expansion of the global session range by at least 50% is ‘significant’, particularly if it also breaches the yesterday’s high or low in the process.  

3) I then wait for the release. If any of the threshold levels outlined above are hit (give or take a few pips) I will look to enter a position in the opposite direction if and only IF the ‘news origin price’ is seen again during the global session. If the market returns to this level having made a ‘significant’ post-release move outlined above, then all of the news-driven traders will suddenly find themselves underwater and it is they who will chase the price higher or lower in stop-loss related buying or selling. If the trade is triggered, I will place a protective stop-loss the other side of the day’s range so far looking to trail it as the trade (hopefully) moves into profit.

As to targets, this naturally depends on one’s timeframe but I would stress that a move of this nature is often good for a 2 to 1 or 3 to 1 reward to risk ratio, if not by the U.S. close then certainly over subsequent days. If the trade is triggered today, I will look to exit at 3 separate levels (PT1, PT2, and PT3) which I will provide if the trade is triggered. If the first profit target (PT1) is hit, I will move I will my stop to breakeven, presenting a near risk-free trade. I hold the trade until either the stop level is hit all of the profit objectives are met, or at 21.00 GMT on Wednesday.