How To Profit From A Pull Back After Market Moves After News


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By Darrell Martin

Preliminary Nonfarm Productivity and Preliminary Unit Labor Costs, both reported quarterly, will be released this week on Wednesday, August 9, at 8:30 AM ET. The productivity news covers an annualized change in labor efficiency, while labor costs news covers an annualized change in the price of labor. Both exclude the farming industry. The first quarter of 2017 saw a decrease in productivity and a rise in labor costs. This event can be traded using an unbiased directional strategy such as the Iron Condor.

Often, markets will react to news releases and make a quick move or a larger than usual move. After the move, the market will pull back. It is on the pull back that the Iron Condor strategy can profit. Using Nadex spreads, a capped risk instrument, the trader can sell a top range of the market and buy a lower range of the market.

For example, for this trade one spread is bought below the market and the ceiling of its range meets where the market is currently trading. Another spread is sold above the market. This spread should have the floor of its range meeting where the market is trading and the ceiling of the bought spread. The market can move either direction. Profit is made when the market pulls back near to where it was at entry. Alternatively, the market can just range there as well and profit be made.

Enter the Nadex EUR/USD spreads at 8:00 AM ET for 10:00 AM ET expiration. To make sure entry is where it needs to be, each spread should have a profit potential of $15 or more for a minimum combined profit potential of $30 or more. That will put the bid and ask approximately 15 pips or more below and above market respectively. The market can settle as far as 30 pips above and below where the market is at entry and profit. Those are the breakeven points.

Risk is capped. The market can move past the floor and ceiling of the combined spreads and risk will stop at those points. To further manage risk, stops can be placed using the Apex Scanner Pro’s Stop Trigger Ticket. The 1:1 risk reward ratio points are where the market would hit 60 pips above and below from where the market was at entry. This number is found by simply doubling the combined profit potential.