ANALYSIS PRIOR TO THE NON-FARM PAYROLL
On 2nd October (Monday), we held our free weekly Alpha Play Weekly Traders Meetup, during which we shared our analysis and insights on upcoming news events to watch out for the week ahead.
One of the key events that we focus on last week was the US Non-Farm Payroll (NFP). This economic data measures the change in the number of employed people during the previous month, excluding the farming industry.
It is one of the most important news event in the Forex market because job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.
If the data released on Friday is significantly better than the expected numbers, it will indicate an improvement in the economy, which usually cause the strengthening of the US Dollar. On the other hand, if the data released is significantly worse than the expected numbers, it will indicate that the economy is slowing down, which usually translate to the US Dollar to weaken.
Based on our analysis on the US Dollar Index (DXY), we saw limited upside on the US Dollar, and we are expecting more downside potential trading out of the NFP risk event.
*To protect our traders’ interest, not all pairs and details will be discussed in this post.
US DOLLAR MOVEMENT POST NFP
On 6th October (Friday), the actual NFP data was released at -33k versus the estimated forecast of 82k.
What this means is that there is a loss of 33k people being employed in the month of September, versus the estimated addition of 82k people into the labour force. This is generally a bad data for the US Dollar, and traders will usually expect the Dollar to weaken.
However, taking into consideration the other two key data – the Average Hourly Earnings and Unemployment Rate, these data are very positive.
If you traded the US Dollar simply based on release of these data, you’re mostly likely been FOOLED by the market.
The initial reaction after the data was released on Friday saw the US Dollar strengthened by 24 points. Traders only looking at the NFP data will be left confused why such a negative data will cause the Dollar to rally.
Soon after, the US Dollar dropped by 50 points. Traders who reacted to the rally or traded the positive data of the Average Hourly Earnings and Unemployment Rate will again be left confused why such positive data will cause the Dollar to weaken.
US Dollar Index Reaction
Don’t Be A Fool In The Market
Taking this lesson further from the market, many traders are also fooled by the hyped expectation in the financial market. They are often misinformed and thus believed that trading is a get-rich-quick solution, and expect trading to be an overnight success solution.
This bring us to the point where we feel it is very important that all traders are aware of the following misconception that are hyped to fool you, especially if you are very new or have yet to start your trading journey.
Win Rate = Profitability
This is no doubt one of the most common questions that amateur traders love to ask, “What is your win/hit rate?” And they stopped there.
So what’s a good win rate? 70%, 80% or 90%?
With these win rate alone, it’s not sufficient to tell you if the strategy is a profitable one or not. You need to know the average risk-reward ratio. On average, how much to do profit when you win; and how much do you lose when the trade goes against you.
Combining win rate AND risk-reward ratio provide us the strategy’s expectancy.
EXPECTANCY is the true reflection of the profitability, NOT win rate.
On a lighter note, we are really proud of our recent students’ achievement.
A shoutout to Mark and Yap Kit for coming in top for the respective batch in Singapore and Malaysia.
Yap Kit’s Achievement
A shoutout to Edwin and Jerry for another good catch in the market too!