Analysis and how to deal with NFP

Understanding the market

Hey traders, how is your trading going so far?

As most of you already know, tomorrow we’ve got the most important announcement of them all: The non-farm payrolls report.

And let me ask you one question: How do you deal with it? Do you still try to take advantage of it?

Those days, where the market moved 200 pips in one direction in just a few minutes are long gone.

Now it’s different. The market moves up, and down, and then again up… and most of the time it ends up where it all started.

Traders that used to place two orders (a buy above the market and a sell below the market) end up with two opened trades, a buy and a sell, and both of them in a loss.

So this is no longer a feasible strategy. Sorry.

But still, we need to learn to live with the NFP announcement and other important ones as: interest rates, GDP, trade balance, and others.

Here is how I deal with important fundamental announcements

Over the years I’ve seen that most of the time, the market takes these announcements as an excuse to move in the direction of the market condition.

That’s the reason even when sometimes we get a good number, the market still goes down. Or when the market gets a very bad figure, and still the market moves up.

Well, that’s because of the market condition, or what other traders call: The Sentiment of the Market.

This is why it is very important to trade only in the direction of the market condition, because the market will use these announcements and other things as an excuse to keep moving in the direction of the market condition.

Now… remember I’m talking about “most of the times”, there are also times that the market moves in the opposite direction… this happens when we get a very different figure from what was expected.

So we still need to protect ourselves, for that reason, I close all my trades when there is an important announcement and I don’t have at least 60 pips on my favor and I’m ably to move my SL to the BE level.

I dont do this with every announcement though, just the important ones like: unemployment reports, interest rates, GDP, trade balance, Central Banks announcements, Central Bank President speeches.

So that’s how I deal with important announcements.

How do you deal with them?

Now lets talk about a few charts…

GBPUSD Analysis

Remember we need to be careful about trading anything, because the NFP report release due tomorrow.

Sometimes the market behaves in an odd way before those announcements, so we still need to be careful alright?

Ok, the GBPUSD is trading near an important LT level. And as we discussed last tuesday, every time the market trades near an important level, it will tend to consolidate (range) around the LT level.

So this is how that consolidation period looks like in the short term charts:

GBPUSD ST

Ok, now you may ask: What can I do with this…

We have several options…

The first thing that we need to do is to create a trading plan. A trading plan will help us reduce anxiety about trading, because this way you know exactly what the market needs to do to open a trade.

So we have three possible scenarios:

1. When the market trades near an important LT level, and it is consolidating in a very well defined range (clear swings and S&R levels), we can trade inside that range.

  • We can take long opportunities around the bottom of the range
  • And short trades around the top of the range

We need to close our trades as it approaches to the opposite extreme.

2. If the GBPUSD breaks the ST resistance level (1.6341), it will trigger a bullish condition, in this case I’ll ignore every short opportunity and will start looking for long opportunities. I’ll wait for a retracement.

3. If the GBPUSD breaks the ST support level (1.6272), it will trigger a bearish condition, and in this case, I’ll ignore long opportunities and will start looking for short opportunities. I’ll wait for a retracement.

This is what makes me feel more comfortable about the strategy I’m using. I know exactly what the market needs to do in order to start looking for trade opportunities.

What do you think?

USDCAD Analysis

Now, I want to talk to you about the USDCAD again because it is trading in a similar way… But not quite the same…

You’ll see what I’m talking about.

On tuesday I did analyze the USDCAD. It was trading near an important level (as the GBPUSD). And guess what, it is still trading near an important level.

Take a look at the ST chart:

USDCAD ST

Do you see any difference between this chart and the one we saw earlier?

Think about it…

The difference between the GBPUSD and the USDCAD chart is that on the first one (GBPUSD), the market has very clear S&R levels and swings, and when we have that, it is possible to trade inside the range.

On the USDCAD however, the resistance level has not been confirmed yet (we only have one rejection). So we dont know yet if that is a resistance level, and for that reason we cant trade inside that range.

So my plan is a little different, in this case I only have two possible scenarios:

  1. If the USDCAD confirms the upper resistance level (1.1197), and then it breaks it, then I start looking for long opportunities.
  2. If the market breaks the ST support level (1.1047) I’ll start looking for short opportunities.

As you can see, the lower support level has already been confirmed, that’s the reason I’m going to look for trade opportunities once it breaks through that level.

See the difference?

Summary

We need to be careful today because of tomorrows announcements.

The market is most likely to trade with very low volume until tomorrow, so dont expect large swings.

About my trades: I have closed everything because of the fundamental announcements.

Your Turn

What do you think about the way I handle fundamental releases?

Do you still trade the NFP report?

What do you think about my USDCAD and GBPUSD analysis?

Please let me know in the comment section.

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Raul Lopez

I've been trading the markets for more than 15 years. I believe the best way to trade is by adapting to the market conditions. You can learn it too, join our community .

  • Muhammad K HALID

    Raul it’x really nice after reading and watching your analysis.they are improving my trading skills on consistent basis.
    i also try to avoid trading during NFP beacuse in trading when there is no news it’x a good news….:)

  • Dwayne Graham

    Nice analysis. I don’t mess with NFP because the US can put out any news it wants and we can only wait until the storm is over to see where the market has moved. I love how you simplify things Raul. Keep up the good work. My major problem is my entry. That is were I need the most discipline.

    • Raul Lopez

      You are right about that Dwayne!

      You know what can help you with your discipline? Have a trading plan for each on of the currency pairs that you are going to trade… try to know in advance what the market needs to do so you trade that pair…

      Try it and let me know how it goes.

  • Chad Hogan

    Hi Raul,
    Yes I’ve been watching GBPUSD very closely and waiting for a confirmation break. I must remember to check the half hour chart for opportunities as you do. I definately dont trade the news directly anymore as Ive lost too much money in the past. I do my best to avoid it.. but as you know thats impossible and we must have a plan around the news. Now we have that break to the upside Im waiting for a retracement. Now, should we be concerned about recent highs to the left? On the daily it seems like a rejection of 1.62632. I hope it remains bullish and retests 1.66377.. We’ll have to wait and see.
    Thanks again.
    Chad.

    • Raul Lopez

      Hey Chad, still holding this trade?

      Yep, you are right, we must have a plan around the news, otherwise our trades will never hit our TP orders…

      I know right now is not relevant but no, you shouldn’t had worried about that, just take the last swing into consideration!

      Please let me know.

  • Hosny Sadek

    thanks Mr. Raul for that article .But I need how to understand the NFP today
    it is expected to be 185k ,previous was 87k .if it is a true expect will it be positive or negative to the USD .and can we out a liomit for its positive or its negative e.g can we say by 190 k positive and unless that is negative
    thank again my prof.

    • Raul Lopez

      Hey Hosny, I dont think it is possible to make sense of fundamental announcements and their impact in the market. Sometimes good figures make the market move up, sometimes down, sometimes it doesnt move, etc.

  • Waqas Khan

    after the breakout please tell me the way how you handle retracements ? i mean by using which method i can see whether the correction is completed or not and i should i enter in the market?