By Darrell Martin
Sometimes scheduled news events can really get the market to react and take off with some good moves. When this happens, a Straddle strategy using Nadex spreads can be ideal for a high probability trade. The Straddle incorporates two spreads, one on the bottom being sold with its ceiling where the market is trading at the time. The other is on the top, being bought with its floor where the market is trading at the time.
The setup literally straddles the market in preparation for the market to make its move in either direction. The beauty of the strategy is the low risk. It is so low that no stops are needed. Friday, February 3, at 4:30 AM ET, the UK will release the Services Purchasing Managers Index news. Traders care about this news as it is a read on the economic conditions based on the surveyed purchasing managers in the services industry.
Typically, based on 12 - 24 months of news reports, the market tends to realize a significant move, making a Straddle, using Nadex GBP/USD spreads, an ideal strategy for a high probability trade. The news is released at 4:30 AM ET, but the trade can be entered at 11:00 PM ET the evening before for the 7:00 AM ET expiration. Each spread should have no more than around a $20 maximum risk for a combined maximum risk of $40.
Once the news is released, the market tends to move. Take profit orders should be placed at the 1:1 risk reward ratio points. For this trade, with a max risk of $40, the points would be approximately 80 pips above and below the point of entry. Once the market reaches 40 pips above and below from where the market was at entry, the trade is breakeven, and moving another 40 pips will make $40 profit.
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