Trading The NFP's

[neutron]

I would like to share some of my own thoughts on the thread title that characterise the market reaction in the mid 2000's.

In respect to credibility, I should disclose I am relatively inexperienced and don't have too many runs on the board.

=> Currently the play seems to be to wait at least 15-30 minutes after the data release before the direction can be confirmed.

=> The fundamental analysis of economists beforehand is not important, as a large move can take place, then reverse within 2 trading days to show the real short-term direction.

=> The two likely outcomes after the data release is; a) spike sharply, small retrace, followed by further gains in initial direction. b) spike sharply, small retrace, threaten to continue in intial direction, followed by sharp reversal beyond NFP pre-release price.

=> Stop losses with reversals around the pre-release price, set at least 15mins after the data release seem to have a high probability of success.

=> The last 30 minutes of trading in Lihir Gold (ASX:LHG) on a Friday afternoon is an useful indicator for the final direction of GOLD in Friday Trading.

=> Straddles and other such strategies around the release of the data is akin to player poker against a stacked deck.


I hope some of the more experienced traders on this board can give some of their thoughts...

[James]

1. Buy euro now at market (1.2950) with 150 pip stop loss at 1.2800, using 2x leverage.
2. Buy a "one touch " (OT) option which pays 300 pips if the market touches 1.2800 before Friday next week, cost is 137 pips
3. Buy a "double touch" (DT) option which pays 300 pips if the euro touches 1.2700 or 1.3200 before Friday next week, cost 116 pips

So if the euro rises to 1.3200, we make 250 pipsx2 on the trade plus 300 pips for the DT option. The cost has been 253 pips for the two options. Net result +550 pips

If the euro falls to 1.2800, we lose 150 pipsx2 on the trade and make 300 pips on the OT option. The cost of the OT option has been 137 pips. Net result -137 pips

If the euro falls further to 1.2700, we make 300 pips on the DT option. The cost of the DT option is 116 pips. Net result +184 pips.

[neutron]

Thanks once again for baring your trading soul James, you have given me just the kind of information that will stimulate further learning regarding forex strategies.

[James]

Originally Posted by neutron

Thanks once again for baring your trading soul James, you have given me just the kind of information that will stimulate further learning regarding forex strategies.

My pleasure

[ForExTractor]

Originally Posted by James

1. Buy euro now at market (1.2950) with 150 pip stop loss at 1.2800, using 2x leverage.
2. Buy a "one touch " (OT) option which pays 300 pips if the market touches 1.2800 before Friday next week, cost is 137 pips
3. Buy a "double touch" (DT) option which pays 300 pips if the euro touches 1.2700 or 1.3200 before Friday next week, cost 116 pips

So if the euro rises to 1.3200, we make 250 pipsx2 on the trade plus 300 pips for the DT option. The cost has been 253 pips for the two options. Net result +550 pips

If the euro falls to 1.2800, we lose 150 pipsx2 on the trade and make 300 pips on the OT option. The cost of the OT option has been 137 pips. Net result -137 pips

If the euro falls further to 1.2700, we make 300 pips on the DT option. The cost of the DT option is 116 pips. Net result +184 pips.

Just one more of the many potential outcomes with this particular strategy:

Euro inches lower all next week, but fails to touch 1.28. Then it breaks down after next Friday.
Let me think, the total loss would be 150*2+137+116 = -553 pips. No free money offered, sorry. Not that I'm sure how it'll play out, but you've got to face the potential losses. Good luck.

[James]

Aah...Forextractor. The guy who thinks I am a pathetic idiot. Nice to hear from you again.

Of course this strategy is not foolproof by any means, and I never claimed it was. However, the timing and nature of these options has been carefully chosen to maximise the probability of a profitable (or at least a small loss) outcome. NFP time normally produces a directional move, if not on the day, the following week. Take a look back.

[novice]

Are people still lining up to be slapped by false breakouts around NFP's?

I bet I can tell you what will happen:

2 minutes before the release the market will go one way by about 70 points

then after the numbers it will go the other way by about 70 points

then it might keep going or reverse again

whatever happens a lot of stop and limit orders are going to be hit and the dealers are going to clean up

The archives of moneytec are full of NFP horror stories (not so much big directional moves but big moves in both directions enough to take out entry and exit (i.e. stop loss) orders quickly)

Also it is very hard to do any fundamental analysis to guague what the NFP's will be. Since NFP's come mostly out of a computer model it is hard to judge what exactly has gone into this computer model. Economic conditions and actual job creation may or may not be represented in NFP's.

[ForExTractor]

Originally Posted by James

Aah...Forextractor. The guy who thinks I am a pathetic idiot. Nice to hear from you again.

Of course this strategy is not foolproof by any means, and I never claimed it was. However, the timing and nature of these options has been carefully chosen to maximise the probability of a profitable (or at least a small loss) outcome. NFP time normally produces a directional move, if not on the day, the following week. Take a look back.

I didn't say you're a pathetic idiot James, no need to twist facts. I said it's pathetic to post a two day transaction report as any sort of performance measure. Do you see the difference - personal attacks vs. attacks on specific actions?