U.S. nonfarm payrolls data is a key gauge of market sentiment. This week’s data will be published on Friday 15:30.
Data causes some of the biggest moves in the forex market. As a result, many analysts, traders, funds, investors and speculators are looking to the NFP number to set the direction.
Many traders and institutional investors use market data and volatility to trade. When trading such news, it is good to wait for the initial volatility, which is often misleading, and then follow the real direction of the market. The goal is to try to capture the rational movement after the data announcement, instead of the irrational volatility that is seen in the first few minutes after the data announcement.
This data creates an environment for scalping the market as well as good entries into longer positions.
The NFP report usually affects all major currency pairs, but one of the favorites among traders is GBP / USD.
The logic behind the strategy is to wait for the market to weed out false signals. The goal is to wait out the initial swings and open a position after the market has sifted through the data.
The strategy can be used on 5 or 15-minute charts to precess the entry point. Let’s assume we’re going to use a 15-minute chart, although the same rules apply to a five-minute chart.
1. We do nothing when the NFP data is released (3:30-3:45 PM in the case of the 15-minute chart).
2. The bar starts at 15:30-15:45, this bar will most likely be big. We are waiting for an inside bar formation on this first 15-minute bar, it could be the next one or the one after that. When a bar closes above or below the inside bar a breakout position should be entered. One may not wait for the bar to close and use the price move above or below the inner bar as an entry. Of course, the last option is the most risky and is not recommended.
Place a stop 30 pips from the entry price or below the top or bottom of the inside bar, depending on the direction of the breakout.
The goal is time based. The biggest moves are within the first 4 hours, with most traders exiting after the 4th hour, after their entry. A floating stop is an alternative if traders want to stay in a position longer.
Dealer Anatoliy Pavlov