By: Jeremy Wagner, Lead Trading Instructor, DailyFX EDU
Friday morning at 8:30a ET (12:30 GMT) the US Non-Farm Payroll figure is released. Approach the news release with a trading plan. One such approach is the News Reversal Strategy.
A key to the News Reversal Strategy is patience. That is waiting for traders to digest the news release, and then looking for technical triggers to enter the trade. With the market volatility increasing leading into this event, it is likely volatility will continue to be high and large spikes may result a few minutes after the release.
This strategy works best on a more liquid pair so a good starting place is a major currency like the EURUSD or GBPUSD. Trade it off of a 5 minute chart.
Here are the strategy rules:
-Just minutes before the release, note the current market price as Pre-Release Price…this will become our entry trigger later on.
-After the NFP is released, wait 15 minutes, or for 3 candles to close.
-Place an entry order to go long at the Pre-Release Price (PRP) if the market is currently trading towards the bottom of the 3 candle range. Place the stop at the bottom of the 3 candle range. Place the take profit order at twice the distance of your stop loss.
-If the market is currently trading towards the top of the 3 candle range, then place an entry order to sell at the Pre-Release Price (PRP). Place the stop at the top of the 3 candle range. Place the take profit order at twice the distance of your stop loss.
-If the entry order doesn’t trigger by the end of the day, then delete all orders.
(Created using FXCM’s Marketscope 2.0 charts)
The chart above is the 5 minute EURUSD chart during July 2011 NFP release. After the three 5 minute candles close, the trader then determines to place a sell entry order as the prices are near the top of the range. The entry order is set near 1.4250. The stop loss is set at 1.4330. Take profit level is 1.4090. A trader may want to move their stop to break even if the prices moves half way to the take profit level.
Additional educational resources
The Non-Farm Payroll news release is arguably the largest market moving event for the US Dollar for the month. Additionally, with the recent debt crisis and consolidation of the stock market sell off, there is likely going to be increased volatility. Day traders who may be interested in another strategy to trade AFTER the release are invited to Join Walker England at 9:15a ET for his live webinar on the US Market Opening Bell. He will share the stock markets reaction to the news release and present his LonNY Day Trading Strategy approaching the market after the news release.
The webinar is being conducted inside DailyFX Plus Live Classroom where you can interact and ask your questions live.
Login HERE with the temporary password noted below:
(Good thru Sunday Sept 4)
Jeremy Wagner contributes to the Instructor Trading Tips articles.
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