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Non-Farm Payroll – Day Trading Forex News Setups GBP/USD 06/05/2011

May 07
22:30 2011

Today’s chart is going to be a bit more “crowded” than usual but it shows a few good examples of the forex trading strategy we use most frequently in the forex trading room. Well Friday as you all well know was Non-Farm day. The one day a month that is sure to produce price action only the brave would enjoy. This last Friday was no exception!

Our first day trading opportunity came on the GBP/USD. Going from left to right look at the first candle marked #1. If you look back at your chart you will see this candle came into previous resistance and then closed as a nice reversal candle. It touched and went through the resistance, and then came back down and closed below it. This is exactly what I like to see when a potential short trade is setting up. Additionally if you look back at your charts you will see that this candle #1 was a nice reversal candlestick formation, however the chart above cuts off the wick to this candle. Long story short candle #1 meet the criteria for the first candle in the 3 candle confirmation entry setup. After this we then looked for what we call the confirmation candle. Candle #2 meet the criteria for this by closing below the body of the reversal candle (candle #1). Once these two candle formed we then knew we wanted to go short and simply waited for the pullback candle (candle #3) to touch the body of the reversal candle. Notice the pullback candle never quite touched the body of the reversal candle, however it got close enough for us to enter and we managed to take +15 pips off this one.

Right after we entered the market came back up to the resistance and formed another reversal candle. The candle after that gave a confirmation entry down, thus giving us another confirmation entry to go short. If we weren’t so close to Non-Farm at that point I would have doubled the position we were already in. Again we stuck with the original entry size and closed it out before Non-Farm Payroll with +15 pips.

We went into Non-Farm with zero running positions. As a day trader that uses tight stop losses (20 pips on average), going into this forex news release with a trade is a pure gamble and therefore I never do it. There are releases that you can safely carry positions into, but this was not one of them. The number was released and surprised the market a much better than expected number….however the unemployment rate rose by .2%, thus there was a conflict between the positive jobs number, and the higher unemployment rate. Because the jobs number was so much better than expected, I counted on more follow through to the downside, but this never happened. The black line shows where we went short, and we were closed out for -30 pips on a half position.

In hindsight, because of the conflict between the numbers I probably should have stayed out of this one and simply waited for the next technical based day trading opportunity. However hindsight is 20/20, and after this trade we were -15 pips for the day on a half position and this is where we stayed. There was one more trade on the USD/CHF long that was closed out at break even. Unfortunately I moved the stop to break even a little to early on this trade. The market came and closed us at break even by only a few pips, and then it ran and hit what would have been our +40 pip take profit. That happens from time to time, and is all just a part of trading. Overall for the week we only managed to pull +10 pips. As I mentioned in the previous recent forex trades update Tuesday and Wednesday were pretty much dead boring days and therefore the day trading opportunities that meet our criteria for a trade setup were rather limited. Still and all profit is profit, and it all adds up at the end of the month! I hope trading is going well for everyone, and I’ll see you all Monday with the next recent trades update!

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