Traders wait for a candlestick pattern
Trading after an economic release is always cautious and comes with its own set of risks. While the initial knee-jerk reaction to the news is usually short-lived, the markets are also notorious for their “V-shaped reversals.” The market spikes sharply in one direction after the NFP report is released, but within ten to 120 minutes, the market reverses direction.
After the release of the NFP report, EUR/USD dropped 35 pips. It then formed a Bullish Pin Candle on the 5-minute chart, suggesting a possible shift from selling to buying pressure. This led to a rally to 1.2950.
Before trading the NFP V-Shaped reversal, traders should wait for confirmation of a candlestick pattern. The Doji candlestick pattern is a common signal that the market is unsure of its direction. Traders wait for a candlestick to close above the Doji before trading.
Look for a pin bar
A pinbar is a single candlestick with a short body and a long wick. The wick is about twice as long as the body. A pin bar indicates that the market is rejecting a level. This pattern also has a “real body” area between the open and close, which is usually colored white or black. The open and close should be at the same price.
If the NFP shows an uptrend, the major currencies are likely to follow. A rising NFP may be a good sign for major currencies, particularly USD. However, if it shows a downward trend, it could signal a reversal.
Pin bars can appear in any market, but are particularly useful during reversal situations. They can help you determine short-term and long-term direction. These bars often mark major tops and bottoms in a market, as well as turning points. However, not all pin bars are worth trading. The best pin bars will form after a retracement to a key support or resistance level.
Wait for a bar’s range to be inside the previous bar’s range
A trader waits for an inside bar following the NFP report and enters a trade once the most recent bar’s range is inside the previous bar’s range. Then, if the price of the most recent bar reaches or breaks the prior bar’s low or high, they buy or sell the stock.
The NFP V-Shaped Reversals are most commonly used in the RSI indicator. These indicators are useful when you can spot them and enter the market to take advantage of the big price move. You can trace them easily by following the Support and Resistance levels. You can simply wait for a candle to close below or above one of these levels.
The NFP V-Shaped Reversals are easy to trade if you follow the rules and manage your risk. To make the most of them, use a low risk strategy and wait for the bar’s range to be inside the previous one’s range before entering a trade.
Exit strategy
While most economic releases result in straightforward market outcomes, the NFP report is notorious for its “V-shaped” reversals. After the report is released, the market spikes sharply in one direction, and then reverses within 10 to 120 minutes, typically within the remainder of the day. As such, it is important to focus on two key exit prices: the risk-reward ratio and the size of the position.
In order to maximize your profits, exit your position at the correct time. This means using a tiered exit strategy. You should exit the first third of your position at 75% of the distance between your risk-reward target. The second third of your position should be exited at the target. If the price turns south before the third piece, use your trailing stop as a rock-bottom exit. This strategy often generates a significant profit.
