How to trade effectively during NFP

Many beginner traders make serious mistakes when trading on the day of the NFP release. First, the lack of an action plan. Often, traders make decisions under the influence of emotions, leading to losses. Example: an investor with a capital of 10,000 PLN bets on a large move on EUR/USD without a stop loss, which in the event of a sudden price movement can lead to a loss of 2,000 PLN (20%). Second, inadequate risk management. Traders often use too much leverage, which, with the increase in volatility on NFP day, results in the loss of all capital. The third mistake is ignoring transaction costs, such as the spread, which on the day of the NFP report can even double. Example: in a transaction on CFD contracts worth 10,000 PLN, the spread increases from 2 pips to 4, which means an additional cost of several dozen PLN.

Volatility on NFP release days is significantly higher than usual. Prices can change very quickly, making it difficult to manage positions effectively. High volatility also leads to greater slippage, meaning that trades may be executed at less favorable prices than you planned. Additionally, during moments of high volatility, stop loss orders may not be executed at the expected price, increasing potential losses. The mechanism of this problem lies in the lack of technical and psychological preparation for rapid changes in the market situation.

Assume you have a capital of 12,000 PLN. Poor position management on NFP day, where you lose 10% of your capital, costs you 1,200 PLN. If the leverage is too high and the market moves 50 pips against your position, you could lose up to 3,000 PLN, which is 25% of your capital. Additionally, there are hidden costs that are not immediately visible, such as an increased spread, which can amount to an extra 300 PLN over 10 transactions. In total, one day of thoughtless trading could cost you up to 4,500 PLN, which is a significant part of your portfolio.

To effectively trade during NFP, it is necessary to implement several rules. First, create an action plan for the day of the report's publication. Determine entry and exit levels for trades in advance and set stop losses. Second, limit leverage. Even if it is tempting, remember that it can increase both profits and losses. Third, monitor the spread before entering a trade. Expect it to be higher and factor that into your profit calculations. Fourth, consider trading with smaller positions to minimize risk. And finally, be flexible. The market can surprise you, so be ready to adapt to changing conditions.

Analyze the charts from previous NFP releases daily to understand their impact.