Today is one of those days that should have a sign on it, If you are a new trader then stop, close the platform and have the day off. I say this cause so many new traders get caught out on Non Farm Payroll (NFP).
NFP day is always characterised the same every month, always falls on a friday, very small liquidity during the Asian session, all the pairs tend to drift lower, the London open is lacklusture and then we limp along for the next 5 hours until the NFP data is released and then we get a trend.
So what should we do, it has been my experience to run as fast as you can in the other direction today at least until the data is released, small volume in the lead up will only mean one thing there is no actual trend to trade. What you have is whipsaw action swinging 10 pips here and 10 pips there for no real reason.
The asian session has seen very little movement with all the smart money keeping their powder dry waiting for the dance to begin later on today.
The warning I gave at the top of this article is targeted at anybody that has less than 12 NFP's under their belt, please dont trade today until you see the data and we get to see the trend, take it from me there is nothing worse than watching all of your profit from this week go up in smoke cause of lack of patience and trading before we get a clear direction.
As for the data itself this is terribly dangerous play to trade it, probably one of the most volatile releases outside of a rate hike that the market deals with, the first part of it their will be tons of knee jerk reactions in both directions but if you wait for a clear trend and then take your trade, you will give yourself a much greater chance of success.
Good Luck All
Friday, December 4, 2009
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I'man is absolutely right. It is also my belief that NFP day is the most difficult data release to trade, because the report is intricate and difficult to analyze quickly, as opposed to a rate announcement which is either up, down, or unchanged. 12/4's NFP release startled dollar bears with the "headline" number of -11,000, this following ADP's number of -169,000 on Wednesday. Gold dropped over $48 yesterday, close to -5%, just underline the significance of the surprise.
ReplyDeleteMarket commentary services pointed to reexamination of rate expectations as a result of the "improvement" in the employment situation. But a closer look at the report, in my opinion, casts doubt on this.
First, the long term unemployed has increased.
“Among the unemployed, the number of job losers and persons who completed temporary jobs fell by 463,000 in November. The number of long-term unemployed (those jobless for 27 weeks and over) rose by 293,000 to 5.9 million. The percentage of unemployed persons jobless for 27 weeks or more increased by 2.7 percentage points to 38.3 percent."
Long term unemployment does not lead to price inflation, which does not support expectations of a near term rate increase. How can it, when these unfortunate people have limited incomes on which to support themselves?
Secondly, the nature of employment gains has temporarily, if not fundamentally, changed.
“Employment in professional and business services rose by 86,000 in November. Temporary help services accounted for the majority of the increase, adding 52,000 jobs. Since July, temporary help services employment has risen by 117,000.
Health care employment continued to rise in November (21,000), with notable gains in home health care services (7,000) and hospitals (7,000). The health care industry has added 613,000 jobs since the recession began in December 2007.”
Employment gains in the health care industry has been growing consistently, as one would expect, as the “boomer” generation enters its twilight years.
But more significant are the gains in the “Temp” services industry. A career as a “temp” is far from stable, as current employment is subject to change at the client's whim. And if anyone really believes that the path to economic growth is through a transition to an economy consisting of temporary employment may be in for some disappointing results. My first question, acknowledging the importance of rate expectations in determining long-term trading direction, is whether one could reasonably expect the Fed to change its rate opinion based on positive changes to the employment situation coming primarily from improvements in the temporary employment industry. I think not, given the nature of temp employment, how does one make long term plans based on inconsistent income earned from this occupation? What inflationary price pressures arise from the masses of temp employees?
As traders, a large part of our job is managing risk, protecting our trading capital. We cannot influence the market movements, we can only control our entries and exits. Increased volatility, large movements in price on NFP days at first glance engender dreams of large gains, when one's first thought should focus on limiting loss. And regardless of what our individual interpretations of the data may be, we must trade the reality of the market action, attempting to remain near the front of the herd.