How to trade the NFP releases in 2022, part 1

BY Chris Andreou

|December 21, 2021

This article series helps you to prepare for risk event trading in 2022 by dissecting the NPF impact on EURUSD and gold in 2021. While the past is never the exact representation of the future it’s still the best guide we can ever have. In this article series, you will learn what’s most likely to happen, (and what’s not likely to happen) after the NFP events so that you can be better prepared in 2022.

The Non-Farm Payroll reports or NFP reports as they are also known, tend to provide interesting trading opportunities for both intraday and swing traders but do you know how to trade these events? We all have trade ideas and concepts we try to apply to catch the big moves that sometimes follow the US employment data releases. But do they provide us with a trading edge? For instance, you see a potential buy setup following an NFP release and decide to take full advantage of the prevailing momentum. However, how likely are you to make a profitable trade? What if the price of gold has already moved 5 or 10 or 15 dollars? Do you have any idea of what difference does it make? After reading this article series you will have a better understanding of the probabilities involved.

From modern financial theory (Efficient Market Hypothesis), we know that markets move when they have new information to move on. Unless new information enters the market place prices just sit in tight ranges as there’s no reason to reprice the assets in question. Traders obviously can’t make any money or can make very little money in such a market.

There will be a point, however, when new information enters the market, and fund managers need to re-evaluate their scenarios and price projections. This, as a rule, forces them to make changes to their portfolios. This can happen for instance when the actual NFP number deviates strongly from the analyst consensus expectation. In such situations fund managers instruct their traders to either buy or sell – often substantial quantities of assets. As a multitude of large institutional investors create inflows and/or outflows the prices tend to move strongly for several days or weeks.

Therefore, if we want to turn the tables and for a change take the advantage of the big money traders, risk events such as the NFP can provide you with excellent trading opportunities! However, in order to trade effectively, we need to understand what’s likely to happen after the NFP numbers are released. Is the market more likely to trade higher if the NFP surprise is positive or negative? Or, does it make sense to aim for 100 pip trades after each news release?

In this article, I will show you what kind of volatility and market movement could be expected after an NFP release. The examples are from 2021 and show you what happens in EURUSD and XAUUSD (15 min. charts) during a 5h period after the NFP publication.

The above graph shows the maximum impact (in pips) of NFP releases over the 5h following the NFP release. The change is measured as follows. Max. Change Up = the highest high of all 15-minute bars minus the last (15 min. bar) close before the NFP release. Max. Change Down = the lowest low of all 15-minute bars minus the last (15 min. bar) close before the NFP release. This gives us a chart that shows both the maximum positive and the maximum negative movement in EURUSD following the risk event.

In the next article in this series, you will find an NFP impact chart on gold too and some critical questions we need to ask in order to make more informed trading decisions when trading the future NFP releases.

We look forward to your trading related questions and are more than happy to cover them in our live trading strategy sessions. Send your questions to [email protected] and ask the support team to forward the questions to me. Also: Be sure you don’t forget to register for the next live webinar here: tiomarkets/webinar I look forward to seeing You there!

Follow this link to part 2

Trade Safe,

Janne Muta
Chief Market Analyst

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