By Your Trading Mentor
NFP USED TO SCARE ME
When I first started trading forex macroeconomics scared me, mainly because I didn’t understand it and it seemed to create all sorts of chaos on the charts. My technical analysis was on point but if I ever placed a trade which was text book technical analysis and then it unexplainably got stopped out on a spike I would just say ‘some big new must have happened, that was unlucky’. While I was correct that some big news often did happen, it probably wasn’t unlucky as we are actually told in advance when they are being released (more or less, sometimes they are a surprise). When I first started trading forex I was told about NFP and I was told don’t trade it. It causes a lot of volatility, spiking and strange reactions in the markets. This is all true. But one of the wonderful things about NFP is it happens once a month at the same time each month so we get plenty of warning. However as I had already dismissed it as something I wasn’t going to bother trading or understanding because it was too difficult and wasn’t worth it I often ended up completely forgetting when it was taking place and still letting it cause problems for me If I left trades open beforehand.
OK, I GET YOU WERE SCARED OF IT BUT WHAT IS IT
So the short version of the long story is that NFP stands for Non-Farm Payroll and is big economical data which comes out on the first Friday of every month (usually). This month, March 2023, it’s one of the few occasions it’s on the second Friday of the month. If you are in the UK like I am it will be released at 13:30 in the afternoon. As the name suggests it’s to do with payroll in America which ISN’T farm related. Which means, most payroll. The numbers when released show us how many jobs have been added or removed in the US over the past month. High numbers are generally good for the US dollar as its showing a healthy economy where people are in work and low numbers suggest a weakening US economy and can therefore can be seen as bad for the US dollar. While this might sound super easy to trade, just buy USD pairs when the numbers are high and sell when the numbers are low, there are actually some nuances which make it slightly less straightforward. What we get on our economical calendar is the previous number, and the consensus for what is expected to be announced on NFP. If, for example, the consensus shows we are expecting the numbers to be high and when they are released they are high, but not as high as expected but still higher than previous – this could be interpreted as bad news, or just confused news. You might see on a 5M chart a whipsaw of bull and bear candles trying to make sense of whether this is actually good news for the US economy or bad news. And that is why it’s not easy to trade NFP.
I’VE HAD A CHANGE OF HEART
Having said all of this I’ve actually recently become a little bit obsessed with NFP and all other forms of macroeconomic data. Having realised that my technical analysis was on point but my macroeconomics could do with some TLC I decided to book myself in for classes with my very own trading mentor. An expert in macroeconomics called Patrick Reid who works for a company called Adamis Principle. I could not recommend the mentor programme enough for those who need a bit of help with their fundamental analysis. Having a better understanding of financial news and economic data and how it moves the markets in the short term, long term and semi long term, I have now made friends with NFP. I stand by the fact that it can be difficult to trade on the day when the news is immediately released but paying attention to the numbers which come out and how this affects sentiment on the US dollar over the following weeks is incredible valuable. These sorts of big economic data releases can often be the thing which reverses trends and causes the markets to move in another direction, so paying attention to what comes out on NFP day, even if you don’t trade the day itself, can be really helpful for the following weeks.
FINANCIAL MARKETS HAVE A HOLISTIC RELATIONSHIP
And while NFP is referring to economical data in America and predominantly affects the USD pairs, the global financial markets have a sort of holistic relationship with each other and you’ll often notice that big news for one market can often have a big impact on other markets aswell. For example, often indices like SPX and NASDAQ can move in the opposite direction to the USD and XAUUSD or Gold can often move in the opposite direction to the USD. European stock markets like DAX or FTSE can then follow the lead of the American index funds and often move in a similar direction. And often AUD can move in the same direction as XAUUSD which means it will be moving in the opposite direction to the USD. I know there is a lot of information here but my point is basically to not leave any trade open during NFP thinking it won’t be affected just because its not USD!
I’d love to hear if you trade NFP or how you use the information or even if you found this information helpful
Love From, Your Trading Mentor