Trading major news events like NFP (Non-Farm Payrolls), FOMC, or RBA announcements, etc can be a bit of a dangerous activity, and to anyone who’s experienced it before you know how badly the volatility can ravage your account.
However, to the Forex trader that is conscientious of protecting their downside, applies disciplined money management, news events can provide attractive opportunities for a lot of movement in a short time.
Today, we’re going to go into one of the more common ways that traders can look to trade news in the Forex market. This methodology is valid regardless of whether the news is positive or negative.
Here’s how it’s done
Let’s use NFP as our example throughout this strategy
Observe Price leading into NFP
At 11pm Sydney time, around 30 minutes prior to the NFP announcement traders should plot their support and resistance areas based on swing highs and lows. Simply use the past several hours of chart data on the 5 and 15 minute charts to create your high and low levels of support and resistance.
The pair you choose to trade is up to you, though given we’re using NFP as our example, I’d stick to one of the major USD pairs such as EURUSD or USDCHF.
Identify Support and Resistance
So, you’ve marked your levels and noted the pip range between the highs and lows. More often than not you’ll notice a relatively tight trading range in the hours leading up to the announcement.
Any surprising NFP numbers that are announced will set off a quite significant and rapid movement, and in the moments leading up to the announcement, and positions can bear significant risks, hence the lack of liquidity and tight range leading in.
Set your Entry Orders
So you’ve got your support and resistance marked, now it’s time to set your game plan. One thing you can be sure of, is that going into NFP there’ll likely be a volatile move. In order to catch it we’ll place our pending orders just outside of our support and resistance zones. Now, as these are pending orders you’ll have to be very wary of slippage which can be quite detrimental during rapid movements.
Set your stops!
Because rapid volatility is expected, it is imperative (as always) to manage your risk properly. Because we’re using support and resistance to enter, let’s use it as our stop loss levels, by placing our stops just outside the opposite areas of support/resistance.
As for profits, we really want at least 2R targets. Though nothing is certain, 2R should be quite attainable considering the significance of NFP announcements.
It really doesn’t get much simpler than that folks, but as mentioned, one of the most important facets of this trade is to choose a Forex broker with very low slippage.