How I traded NFP 01-08-2010

Forexwatchman · (#1 (**permalink**))

So here we go, this was a classic use of fibonacci and conservative patience. Basically I let the market react however it chose to, and waited to see a "line in the sand" or a point of resistance in which to draw a fib. Once that happened I saw that the retrace stalled out at 50, the mid point of the 38.2 and 61.8.
Now I did not enter there, I was waiting to see it reach 61.8. So I go in late when it reached the 0 line, but look at how price action then extended up to the mid point of 138.2 and 161.8, exactly as it should have based on fibonacci rules. Check out my crude screen capture. Unfortunately I wasn't able to get a screen capture while my trade was still active, but I took this one shortly after I closed my position for a 48 pip profit in 20 minutes of trading. Beautiful!

Music Man · (#2 (**permalink**))

My approach was much simpler. I collared the price about 10 minutes before the news was due. My prices were set based on Bollinger Bands. It so happened that movement to the downside had the price action around the lower line, so I put my sell stop around 20 pips below the lower line and the buy stop just above the middle line (SMA(20)). Then I waited. When the news came and the price shot up, my buy order executed. At the 1st pause in upside action, I put a 15 point trailing stop.

I snagged 46.5 pips in 10 minutes (counting the wait time).

If I were to propose a more formal method of setting the stop prices, I'd say 2.5 Standard Deviations above and below the price just before the news on H1 chart. It's risky, due to stop hunting and spread widening shenanigans. The important thing is to not stay in the trade if your stop executes prematurely -- close it and replace your stop order further away. Often, the market does a false move before the news that can trigger your stop in the wrong direction. Better to pay the spread than to get caught on the wrong side of the bounce!

MM

Forexwatchman · (#3 (**permalink**))

I wonder what happened to my image. If you aren't seeing it here you can view it on my homepage. Anyways, yet another example of how its not just about what works, but also what works for your trading personality. Both methods make since and this is certainly not a very orthodox thing to do (trading the NFP) since it's a high volatility time where just about anything can happen. Smart money takes the report home and digests the numbers over the weekend. But for 4 months in a row now I have walked away from it a richer person so I can't say it's too dangerous to do. But its not for the inexperienced and I certainly advise practicing on a demo before you actually trade this event (disclaimer). Don't throw away week's worth of profits over this one event.

Ricex · (#4 (**permalink**))

Interesting styles gentlemen, glad you came away winners.

Music Man · (#5 (**permalink**))

I like Forexwatchman's trade. He caught the lift that I left on the table.

MM

cowmadagan · (#6 (**permalink**))

Two words:
Johnnie Walker...n'uff said

Music Man · (#7 (**permalink**))

Well, this Friday is NFP 2010, Round 2. Are we still game?

MM

cowmadagan · (#8 (**permalink**))

I recommend a case of beer. It's good for both celebrating a victory, and consoling a loss.

If I manage to unwind most of my positions by then, I might do what I think Ricex said he was going to do last time...sit out and do risk free testing guesses over said ale(s).

Forexwatchman · (#9 (**permalink**))

Me and Fibonacci will be there for sure!

Ricex · (#10 (**permalink**))

I will be watching from the safety of my specially built NFP bunker.