Whether you’re an account manager or an active IB (Introducing Broker), having a solid grasp of the financial industry and the market is vital. It’s not just about being good at what you do; it’s about being a reliable source of information and advice. You need to be a mentor and a trusted financial advisor for your clients, ready to provide them with valuable insights and strategies to maximize their profit opportunities.
One of the critical financial reports you should be familiar with is the Non-Farm Payrolls (NFP) report. It’s a big deal in the financial world and can significantly influence the markets.
So, what is NFP, and why is it so important?
NFP stands for non-farm payroll. It is a key economic indicator that measures the total number of paid workers in the United States, excluding those employed by farms, the federal government, private households, and nonprofit organizations. The NFP report is released by the Bureau of Labor Statistics on the first Friday of every month at 8:30 AM ET. It’s a valuable gauge of the country’s economic health and can impact various financial assets, including currencies, stocks, and commodities.
NFP and the Forex Market
The NFP report is one of the most important economic indicators for forex traders. This is because it provides a snapshot of the health of the US economy, which is the world’s largest economy. A strong NFP report is generally seen as a sign of a healthy economy, while a weak NFP report can be seen as a sign of a weakening economy.
Watch the NFP report closely because it can have a significant impact on currency prices. For example, if the NFP report is stronger than expected, it can lead to a rise in the US dollar. On the other hand, if the NFP report is weaker than expected, it can lead to a fall in the US dollar.
How to Trade the NFP
When NFP news breaks, should you buy or sell?
Buying or selling a currency pair immediately after the NFP report is released can help you profit. For example, if the NFP report is stronger than expected, you might buy the US dollar/Japanese yen (USD/JPY) pair. If the NFP report is weaker than expected, you might sell the USD/JPY pair.
Real-life example:
In August 2023, the NFP report was released and showed that the US economy had added 528,000 jobs in the previous month. This was much stronger than expected, and the US dollar immediately rose in value against other currencies. For example, the USD/JPY pair rose from 132.00 to 133.00 in the minutes following the release.
Strategy:
Use technical analysis. Look at charts of past NFP releases to identify patterns that can be used to predict future movements. For example, you might notice that the USD/JPY pair has a tendency to rise after a strong NFP report and fall after a weak NFP report.
Real Market Data
| Date | NFP report | USD/JPY | EUR/USD | GBP/USD |
| 2023-08-05 | 528,000 | 133.00 | 1.0200 | 1.2200 |
| 2023-07-08 | 372,000 | 132.00 | 1.0100 | 1.2100 |
| 2023-06-03 | 390,000 | 131.00 | 1.0000 | 1.2000 |
| 2023-05-06 | 428,000 | 130.00 | 0.9900 | 1.1900 |
| 2023-04-08 | 428,000 | 129.00 | 0.9800 | 1.1800 |
Your NFP report trading steps to profit:
- Identify the support and resistance levels for the currency pair you want to trade.
- Place a buy order above the resistance level and a sell order below the support level.
- Once the NFP report is released, monitor the market to see if the price breaks above the resistance level or below the support level.
- If the price breaks above the resistance level, enter a long trade. If the price breaks below the support level, enter a short trade.
- Place a stop-loss order below the support level for long trades and above the resistance level for short trades.
What’s a resistance level?
Resistance levels are price points where the price has been rejected in the past. This could be because there are more sellers than buyers at that price level, or because it is a psychologically important level, such as a round number.
What’s a support level?
Support levels are price points where the price has found support in the past. This could be because there are more buyers than sellers at that price level, or because it is a psychologically important level.
Example:
Let’s say that the stock of a company is trading at $100 per share. The stock has been in an uptrend for the past few months, and the $100 level has been a resistance level in the past.
If the stock tries to break above the $100 level, it may face selling pressure from traders who believe that the stock is overvalued. If the stock is unable to break above the $100 level, it may fall back to lower levels.
If the stock falls below the $100 level, it may find buying support from traders who believe that the stock is undervalued. If the stock is able to hold above the $100 level, it may continue to rise in value.
How to use resistance and support levels
You, as a trader, have the power to utilize resistance and support levels. For example, a trader might buy a stock if it falls back to a support level, and sell the stock if it reaches a resistance level.
You can also use resistance and support levels to place stop-loss orders. A stop-loss order is an order to sell a security if it falls below a certain price. For example, you might place a stop-loss order below a support level to limit your losses if the stock falls below that level.
It is important to note that resistance and support levels are not always static. They can move over time as market conditions change. Always be careful not to rely too heavily on resistance and support levels when making trading decisions.
Remember:
- Be aware of the liquidity of the currency pair you are trading. NFP can cause significant volatility in the market, so it is important to trade a currency pair that is liquid.
- CMTrading offers fast execution and low spreads. This is especially important when trading the news, as you need to be able to get in and out of trades quickly.
- Be patient and don’t overtrade. NFP is a major economic event, so it is normal for the market to be volatile in the days leading up to and following the release. Don’t feel like you have to trade every NFP report.
- Manage your risk carefully. Always risk only what you can afford to lose and use stop-loss orders to protect your profits.
Now that you grasp how important the NFP report is, it’s time to put this knowledge into action. You can host webinars where you guide traders by showing them how to trade during NFP events. Share your strategies and insights, helping others make informed decisions.
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