Low Risk - High Reward – Does it exist? My friend who lives in Perth , Australia , has just come back from two weeks surfing in the beautiful blue waters of Sydney . Can you believe it? It is meant to be the middle of winter over that side of the world! Needless to say he hadn't been doing much trading. So to get him back into the swing of things, I was telling him about how I trade the Non-Farm Payroll (NFP).

Day trading at the time of news is very risky, especially so when the Non-Farm Payroll is announced in the U.S. There is one special set-up though that prompts me to consider trading at this time. I am looking for three separate conditions to be present and when all of these are met I believe I will have an edge that allows me to reduce some of the risks involved.

The three conditions are fairly straight forward;

Stochastics have to be overbought or oversold
The Price has to be within 40 pips of a DC number (the blue horizontal lines shown on the chart below)
The NFP news has to support the direction of the trade

Let's go through these three conditions in a bit more detail using the daily chart below;

1. Stochastics have to be overbought or oversold

The price bar before the green bar (which indicates when the NFP was announced), shows that the 14,3,3 stochastics were over 80 prior to the announcement.

2. The Price has to be within 40 pips of a DC number

These are the blue lines shown on the graph below and for a detailed look at what the DC numbers are please go to www.thedanielcode.co.uk . In brief, the DC numbers give accurate market turning points well in advance of the price action. The chart above was available to our subscribers well before the London open and approximately 5-6 hours before the announcement which gives you plenty of time to do your analysis.

The close of the previous daily bar was 1.5889 and was well within 40 pips of the Blue DC number at 1.5904 so this condition was met.

According to the DC Numbers we have a high probability of a turn at these market points. We were therefore expecting a reversal for the EURUSD within 40 pips of its daily DC number which was at 1.5904. This tells us we should be looking to go short. The DC number also allows us to set the risk which we set at about 30 pips above the DC number. The total risk in this case is about 55 pips of you entered at the previous days close.

3. The NFP news has to support the direction of the trade

Now that we have set the direction, we just needed to wait for the trade. If the news was good for the USD dollar we were ready to sell the EURUSD. As it happened, the EURUSD fell sharply and this made for a great trade as you can see by the chart below.

Does this meet your standards for a high reward low risk trade during the risky time of the NFP announcement? If you wish to get the edge for trading the NFP I suggest you take a look at these three conditions to increase your profits.

By Yvonne Lundon-Marchant
www.thedanielcode.co.uk

Yvonne Lundon-Marchant is a full time Forex trader based in London , U.K. More information and articles on currencies, gold, silver and stock indices, including a free two-week trial, can be found at www.thedanielcode.co.uk

John Needham Archive

Comments

Richard 04 Jul 08, 11:40	DC ? Confused as to point/condition 3. Looks like announcement was NOT in the direction of the trend or did I get your condition wrong??
07 Jul 08, 09:04	DC ? reply Thanks for your question. Conditions 1 & 2 give us the direction of the trade we want to take - which was to look at going short. The news supported the direction that we had preferred for this trade. This does not relate to the market trend at all and you are correct that the trade was indeed against the trend. Please e-mail me if you have any further quetions and I will also send you a current DC chart for you to have a look at. yvonne@thedanielcode.co.uk
Jimmy 12 Jul 08, 08:03	Free trial? Hi Yvonne. If this system works during the most volatile time (NFP), it should work equally as well if not better during day to day announcements? How do I get a free trial? Jimmy
Yvonne Lundon-Marchant 13 Jul 08, 06:26	Free Trial? reply Yes Jimmy you can use this approach during most news announcements that cause volatility. I used this method with great success shorting the USDJPY during US trade balance announcement on Friday (11th July 2008). Another tip is that there is a link on our site www.thedanielcode.co.uk to the FX Street economic calendar. I use this calendar myself because I like the way it gives an indication of the level of expected volatility that accompanies each announcement. An announcement that is likely to cause high volatility is marked by the symbol three exclamation marks !!! In regards to accessing our site, anyone reading this can get a free trial with unrestricted access to all material including the members documentation. Just register at www.thedanielcode.co.uk Yvonne

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