How to Trade the UK Claimant Count Change: A Comprehensive Guide
Introduction
The UK Claimant Count Change provides key insights into the health of the labor market by measuring the change in the number of people claiming unemployment-related benefits.
This guide will outline a step-by-step strategy used by professional traders to gain an edge over the 95% of losing traders. Read carefully and you’ll learn how to effectively trade the Claimant Count Change report.
Understanding the UK Claimant Count Change
The Claimant Count Change, released monthly by the Office for National Statistics (ONS), measures the change in the number of people claiming unemployment benefits. This data offers a snapshot of the labor market and is a critical indicator of economic health.
Why Claimant Count Change Matters
- Labor Market Health: It provides direct insight into unemployment trends, reflecting the broader economic condition.
- Influencing Policy: The Bank of England (BoE) monitors this data closely as it can influence monetary policy decisions.
- Complementary Data: It adds depth to other major reports like GDP growth and inflation data, helping traders form a complete picture of the economic landscape.
Why Claimant Count Change Often Won’t Move the Market
- Lagging Data: It reflects past unemployment trends, which may not be as impactful as real-time economic data.
- Tier 2 Status: It’s not as prominent as GDP or inflation reports, so it usually doesn’t create significant market movements. Traders often prioritize other economic indicators.
Special Circumstances
As of the writing of this article, a snap election has been called in England. During such times, economic data points may be less impactful or predictable due to the heightened political uncertainty. Traders should consider the broader political context when trading during these periods.
Trading Strategy for UK Claimant Count Change
Step 1: Analyze Bank of England Priorities
The first step is to understand the data points the Bank of England (BoE) is currently focused on. If the BoE is focused on employment data, the Claimant Count Change will likely result in significant market volatility.
Generally central banks are focused on employment and inflation prints – but they may call out specific parts of the prints (such as with the FED calling out average hourly earnings at one point) or their emphasis will make tier 2 data release still react with force in the market.
To quickly determine the BoE’s current focus, you can use our Professional Economic Calendar, which includes a fundamental guide. This resource helps traders quickly identify what the respective central bank is focused on.
There are also a number of free resources available including www.forexlive.com
Step 2: Use High-Low Expectation Forecasts
Professional traders rely on high-low forecasts to gauge market expectations accurately. Here’s why these forecasts are crucial:
- Institutional Forecasts: Professional economic calendars include high and low estimates from top institutions, offering a comprehensive picture of potential outcomes.
- Market Shocks: Reports exceeding the high estimate or falling below the low estimate can shock markets, leading to sharp movements.
- Lightning Bolt Feature: This tool signals a deviation above the high or below the low of analyst expectations instantly, allowing traders to act without delay.
Understanding High-Low Forecasts
Economic forecasts are derived from surveys of credible institutions. Retail calendars typically present the median of these estimates, which can be misleading. Professional economic calendars include both high and low estimates, revealing the full range of expectations and indicating how surprising the actual data release is compared to the extremes.
Great trading opportunities arise when data releases fall above the high or below the low estimates, creating market shocks that move prices significantly.
Step 3: Choosing the Most Volatile Instrument to Trade
Using insights from institutional reports, traders can select the most responsive currency pairs.
For example, if GBP/USD is particularly sensitive to economic data and the Claimant Count Change shows a significant deviation, this pair could be an ideal target for trading.
Think about using the following reports to choose which pair to trade.
- City Economic Surprise Index: This report identifies currency pairs that react strongly to economic surprises, helping traders focus on the most responsive markets.
- Risk-Reversal Report: This report shows market positioning, revealing a buildup of call or put options on certain currency pairs, indicating potential for significant movements upon data release.
- CFTC Report: This report details hedge funds' positions. If large players are long on GBP/USD and data favors a bearish outlook, funds may unwind their positions, leading to outsized moves.
The real magic is in using all three of these reports together.
Trade Execution Steps
Confirm BoE Focus
Ensure the Bank of England is currently emphasizing employment data. If employment is a primary focus, the Claimant Count Change report is likely to move the market significantly.
Check Forecast Ranges
Before the data release, review the high and low forecast expectations. Plan to trade only if the actual data significantly exceeds the high estimate or falls below the low estimate. This strategy ensures you act on genuinely surprising data, likely resulting in a follow-through reaction.
Monitor Revisions
Check for conflicting revisions in the data, as these can alter the initial market reaction. Ensure the primary release and any revisions align to support your trade.
Enter Trade Promptly
Once you confirm the deviation, act quickly to enter your trade. Enter within the first 30 seconds, as market reactions to significant data surprises happen rapidly.
Set Stop and Take Profit
- Stop-Loss: Place your stop-loss below the low of the initial spike candle to protect against adverse movements.
- Take Profit: Aim for 15-30 pips for tier 2 events like Claimant Count Change, adjusting based on market conditions and volatility.
Managing the Trade
After the Initial Run
Look for a shallow pullback around a 23% Fibonacci retracement or near support/resistance levels. This initial pullback can provide an opportunity to enter the trade again after taking some profit off the table from your first entry.
Break Even
Move your stop-loss to break even as soon as possible to protect your gains. The stronger the release, the shallower the pullback. If the market doesn’t buy off your S&R level and continue to the highs of the one-minute candle, something could be off.
Reentries
If your initial position is stopped out at break even, consider reentering at deeper retracements, such as the 38% or 50% Fibonacci levels. Use nearby support and resistance levels to guide your reentry points.
Conclusion
While the UK Claimant Count Change report may not always lead to significant market movements, understanding its nuances and using a professional trading strategy can help you capitalize on unexpected deviations.
If you don’t have the tools mentioned above, try out our Professional Economic Calendar Package and use institutional tools to level the playing field.
By following these steps, you’ll be well-prepared to trade the Claimant Count Change report effectively, leveraging the same strategies that professional traders use to profit from this economic data release.