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Risk Management, Trade Psychology + Strategy Cheat Sheet

Now we have our strategy outlined and we know exactly how to operate on the NFP release.

It is an absolute must to stick to your plan exactly when trading this release. To operate in quick-fire conditions such as a news event you must adopt a ruthless approach to executing your strategy, as there is no time to waste. As soon as price breaks the VWAP, you must execute your trade.

The absolute key to successfully trading any strategy is to have the right frame of mind and to manage your risk. As we are trading such a volatile news event, these two elements are even more important, as both can be affected by the trading conditions.

Remember that if price does not break the VWAP, you do not enter the trade even if price is pushing heavily. Only enter as price breaks the VWAP. Again, do not be tricked into entering on the candle that closes at 13:30. This candle will sometimes see a lot of volatility, but remember that we are only interested in the candle that OPENS at 13:30.

In terms of your trade risk, treat this strategy the same as you would any other trading strategy, and look to risk a maximum of 3% per trade.

The key is to exit at -30 pips if price goes against you. A lot of traders will hold a losing trade, hoping that it turns around, but we are trading an extremely volatile news event and there is a risk of price moving sharply against your entry without retracement. Just holding one losing trade could be enough to wipe out several winning NFP trades, so remember to stick to your strategy and exit at -30 if hit. It is far better to take a small loss and preserve capital for future trades that to end up wiping out 30% of your capital on one trade.

With that in mind, it is useful to have a “cheat sheet” to hand for reference when trading on the day. In the next chapter is an example of a cheat sheet, which you can either print off or have open on another screen during the NFP trading period.

NFP Trading Strategy Cheat Sheet

VWAP Breakout (Basic Version)

Rules:

  1. Use a 5 min chart to identify the VWAP (using a standard 20 period setting).
  2. Trade the break of the VWAP on the 5 min bar that opens on the NFP release.
  3. Use a stop loss of 30 pips from the VWAP break.
  4. Exit the trade on the 5 min candle close.

Risk:

30 pips risk per trade. Maximum 1.5% account risk per trade.

 

VWAP Breakout (Advanced Version)

Rules:

  1. Use a 5 min chart to identify the VWAP (using a standard 20 period setting).
  2. Trade the break of the VWAP on the 5 min bar that opens on the NFP release.
  3. Use a stop loss of 30 pips from the VWAP break.
  4. Exit half of your position on the 5 min candle close.
  5. Move your stop to the entry point on the remaining half position.
  6. Exit trade as price breaks (and retests the VWAP).

Risk:

30 pips risk per trade. Maximum 1.5% account risk per trade.

 

Conclusion

So you now have all the tools in place that you need to successfully trade the NFP data release – from simple strategies through to the more advanced, a word on risk management and a trading cheat sheet to keep by your side when you’re preparing for the NFP trading session.

Now it’s time for you to put all of this to work! Let us know how you get on (and if you have any suggestions for trading events you’d like to see us cover in our next event guide) by dropping us a line at editor@littlefishfx.com.

Now go and put these NFP trading strategies into action – good luck!

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