Nonfarm Payroll Definition


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Video Transcription:

Hello traders. Welcome to the News Trading Course and the third module, News That Move the Market Profitably Enough First Trade. In this lesson I’m going to talk about non-farm payrolls, and what I’m going to do here is I’m going to define what non-farm payrolls are, I’m going to teach you the logic behind the interpretation of this data, and then I’m going to show you how to trade it.

Non Farm Payrolls Definition

Okay so we are going to take this step by step, and we are going to start with the actual definition of non-farm payrolls. This is a statistic research recorded and reported by the U. S. Bureau of Labor Statistics. This means that we are talking about unemployment numbers in the United States of America. It intends to represent the new jobs created in the American economy compared to the previous month, but this number excludes farm workers — and this is why it’s called non-farm payrolls — private household employees, and non-profit organization employees.

So this is basically what the non-farm payrolls represent. It represents the number of jobs that the American economy has created compared to the previous month, and the number always ranges between plus 100,000 to plus 300,000 or sometimes a little bit more.

Now let’s see the general interpretation of this number is that an increase in employment means that businesses are hiring which indicates that they are growing, okay. This is very straightforward and very simple to understand. The more businesses are hiring or the more businesses are creating new jobs it means the more they are growing which indicates that those businesses have more customers because their products or services are in demand and those clients have more money to spend.

So this is the entire logic behind the NFPs, okay, but basically what you need to understand is that if we see an increase in employment numbers this means that businesses have more demand for their products because they need more manpower to cover this demand, okay, and when businesses have more demand for the products or services it means that their clients have more money to spend in them, okay.

And when their clients have more money to spend in them it means that the economy is actually growing, which is good for the in this case United States, and of course the opposite is true for a decrease in employment. If we see that less jobs are being created, this means that the demand for the business’s products and services is also decreasing because their customers are spending less in them.

But basically these non-farm payrolls change every month, and we are just looking at their immediate effect in the markets, okay. So if we have positive numbers it is good for the economy, thus it will increase the value of the U.S. dollar, okay.

And we already know that if the U. S. dollar increases in value we are going to be looking to sell the Euro U. S. dollar and we are going to be looking to buy the U. S. dollar Yen. But, if we have negative numbers it means that the immediate reaction to the U.S. dollar would be a bearish one, which will mean that we will be looking to buy the Euro U. S. dollar and sell the U. S. dollar Yen. And of course you can always print out the implication charts that I made for you on the last lesson of last module.

NFP Definition

Now, let’s talk about how to read it, okay? The total of non-farm payrolls accounts for 80% of the workers who produce the entire gross domestic product of the United States, okay, and this means that this is the most important figure released every month and we should always pay close attention to it, okay. Now just Imagine that the NFPs account for 80% of the workers who produce the entire GDP of the U.S. Now this is massive, so this is why we are talking about the NFPs first, and then we are descaling to less important news.

Now how to trade the NFPs. First of all we are never going to prompt trade news. You already know this. We wait for the news to be released, and then we trade it. The NFPs are a very volatile event, and most of the times you will have big spikes in price before the data release. This is why are not going to use spending orders or buy and sell stock to get filled, okay. We are never going to do that with the NFPs because you are going to see on the next lesson when we go to the last NFP numbers release that you are going to have spikes to the up and to the downside before the news is actually released, which will mean that if you put this buy stops and sell stops you are just going to be hunted down, and you are going to get filled on a pending order and then get filled on a stop loss for a loss, okay?

So what we are going to do is we are going to use corrections and consolidation techniques to profit from the move. And since during non-farm payrolls big volumes comes in, levels are very unlikely to be respected, okay. So you have to be very careful when trading with the NFPs, but we are going to use levels not for breakouts but for targets, okay. And we are not going to use immediate levels, we are going to use what we call longer term levels like on the one hour because when big volume comes to the market the immediate levels are never respected, and there will big money just buy through those offers or sells through those bids.

Adam

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