A Barometer of Economic Health
Of course the number of jobs added in the economy and the unemployment rate is probably one of the most important numbers in terms of judging the health of the US economy and there's no doubt, its the most popular news realize to trade of all but how many trader make money trading non farm payroll? Very few.
Mistakes Made When Trading Non Farm Payroll
I have been trading the Forex markets since the late seventies and the fatal mistake that most traders make is they want to trade right after the number has been realized but this will simply see the trader lose money.
The number very often sees a reaction to it after the initial realize which is totally the opposite to what you would expect and in addition, volatility is high. Over the years I have seen people come in within a few minutes of the number – work out which way they think the market should go from what they have read in the news and they get killed.
Another lot of traders come in and trade non farm payroll to make a quick profit with technical systems which are either scalping or day trading based and there easy meat for the market – they have their stops to close and are taken out by volatility.
Trading non farm payroll at the realize is one of the dumbest mistakes a trader can make and the its actually best to wait for the initial volatility to die down and take a look at the price action AFTER the market has settled.
Always Understand this Key Point!
Markets don't react to the news as people expect - because if they did, it would be very easy to make money and it clearly isn't. All volatility around the realize of non farm payroll or in any short time frame is random so you need to look at the bigger picture.
Non Farm Payroll Should not Be Seen on its Own – Look at the Big Picture.
The number should NOT be seen in isolation! It should be seen in line with the long term trend in the currency and also, in terms of the sentiment.
For example, if traders are expecting a bullish number and it is bullish and fails to push the market higher then, you can probably expect a reaction the other way and vice versa, if the number is bearish. It's not the payroll number itself which is important - its how the market reacts in terms of the prevailing trend.
Trade after the S & P Opens or at the Close
If you are looking to trade the number wait until at least an hour after the S & P opens ( you need to see stocks and how they react as well to get the big picture) and our own view is to wait until the market is due to close:
At the end of the day, you can view the number in terms of market sentiment and the prevailing trend and enter a trading signal accordingly.
Final Word
I read a lot about traders making money trading the non farm payroll number when its realized ( but have never seen one win consistently) and hear a lot about High frequency trading systems which react within a nano second of the realize and try and make a big profit and I have worked in a bank when traders try and do this – the result? A lot of commission for the bank and none for the client.
In terms of trading fundamental reports there is more hype about non farm payroll than any other but the fact remains that trading non farm payroll should not be done in isolation. Its just one of numerous reports which you need to trade like you do with any other – by looking at the sentiment of the market and the long term trend.
