Here’s how I did:
The $USDCAD is our favorite pair to trade when it comes to NFP releases. Canadian Economic/Employment figures are printed the same time Nonfarm payrolls hits the wire - and the CAD numbers seem to never disappoint. That being said, a pre-existing bias already offered itself to pay attention to the Loonie chart, and make a move off some great volatility. It is important to note that we employ a separate trading strategy when it comes to NFP. Primarily because the potential for major market moves exists and a lot of money can be made in a short amount of time. That being the case, we’ll push our effective leverage out just a bit and risk more from the get-go to capitalize on volatility. (Thus, we require additional confirmation from the onset).
STRATEGY
Trading around NFP can be very rewarding if you’re patient and have a solid game plan. The specific methodology we employ is similar to the “normal” tactics for trading our H4/D1 charts, but with a few more enhancements. Why? Well, the market moves very violently during such a major economic release. So, any position we’d be looking to take would not only need to fulfill the original requirements for a “normal” trade according to our plan, but, an additional three stipulations:
StrongWeak snapshot
[ul]
[li]BEFORE- Analysis of H4/D1 chart using our normal strategy, but, with the addition of a momentum indicator
[/li][li]DURING- Determination of the strongest/weakest single currency 3-5 minutes during release (FXCM StrongWeak App)
[/li][li]3-5 MIN AFTER RELEASE- Positions taken will either fade a rally (sell into strength), or buy a sell-off (buy into weakness) @ the peak / bottom
[/li][/ul]
Understanding which single currency is moving the most after the release is beneficial because this illustrates the market participant’s intention and where attention is being paid the most. Just before the release, we’ll scan the major USD-based pairs using price action analysis, supply/demand theory, pattern recognition, and fundamental awareness, PLUS, a 14, 3, 3 Fast Stochastic. What we’re looking for is signs on an H4 chart of a looming shift in momentum, coupled w/ the aforementioned strategies. If NFP hits, and the market sells off/rallies hard into that divergence, then you’re in business.
USDCAD H4 CHART
Rather than seeking out a single point of divergence when trading NFP (i.e. an indicator saying one thing, price action saying another), due to the increased risk we’re taking from the onset our strategy calls for multi-divergence. In other words, our momentum indicator needs to be strongly firing off a mathematical signal representative of two points of divergence with the corresponding price history. Key points for the position, looking @ the H4:
[ul]
[li]Multiple divergence signals (momentum shifting) - Even before NFP put in the lower low, the two points of divergence existed
[/li][li]Trading near a key level 1.10 + Bearish breakout structure (classic breakout / retest price action strategy)
[/li][li]Ascending trendline from higher time frame chart under 1.1 / with the overall trend
[/li][li]Trading in/near a defined demand zone
[/li][li]Descending channel pattern (origin is 3/26)
[/li][li]Recent USD weakness against the CAD (Buying into weakness)
[/li][/ul]
USDCAD M5 CHART
The M5 is the bread and butter preferred timeframe for scalping intraday. The chart should be pretty self-explanatory, but let’s go through it anyway. As mentioned, our first step was to find that momentum shift in a USD-based pair using price action analysis and a single indicator off the higher timeframe. Once the numbers hit the wire, you need to confirm your game plan based off what the market is doing. In other words, on the USDCAD we had already defined our entry “area” based on an anticipation that the market would sell off. Seeing the worst than expected USD print and better than expected CAD figures, everything began to fall into place.
Most of the time, after NFP prints, the market will return almost back to where price was trading before the release in the same day (unless there is a large # in the way or another logical horizontal level present). Sometimes, a major sell-off as seen today can literally stop on a dime, and immediately start to reverse and threaten its origin point. Others, the market will see if the move can be sustained and try to push deeper. With that being said, our strategy typically allots for 1-3 entry points based on reading the PA live off the M1 chart.
This trade was no different - the pair started showing signs of stalling @ the bottom of our demand zone, which was the first signal to get in (in case that was the trough). Sellers tried to keep the push alive but were unable to make a printed new low (confidence for buyers). This was the second signal to get in, and bring the position up to the full amount of risk. The initial target was just under 1.100 (which is logical) but, was missed by less than a pip. Continuing to read the PA live, the plan was to consider covering if the lows from the original sell-off were breached with conviction. The push @ 1.0965 was exhaustive and buyers came back in strong.
The previous swing high (where our limit was missed) is the logical place to position a limit, but, sometimes traders need to add a buffer. Our limit was moved down to just beneath that swing high, and booked for an average of 20 points (26 on first pos, 14 on second pos). With 1.1 being such an important level, it’s no surprise that the origin point of the move wasn’t tested. Sometimes, you need to be aware of factors such as this, and adjust your profit targets accordingly. Why? Well- if you had your limit on the other side of the big figure 1.1 - chances are, institutions are stacked @ that price and you wouldn’t see a trade above it. Also, its important to monitor price action live as the approach was made on the limit. There may have been strength to retest 1.1, but it never came.
RECAP
Each opportunity to trade around this release is met with the same strategy - buying into weakness, selling into strength. However, it’s not as easy as simply placing a sell market order @ what you feel is the top of a rally shortly after NFP prints. As a trader, you must be aware of many other factors- factors such as where price is currently trading on higher timeframes, and whether or not the pair you’re buying/selling into has the participation behind it to make a substantial move. Capitalizing on major-market impacting releases, such as NFP, and the ensuing volatility, is a great way to start off each new trading month. You just need to have a game plan heading into the release, and maintain confidence in your ability to accurately execute when the time comes.
HD Links to images:
Strongweak
H4 Chart
M5 Chart
If you have any questions, please feel free to ask!
Comments/Concerns are always welcomed as well!
Would love to see other traders’ strategies!
Have a great weekend.
-Jake Abrahams
