By Darrell Martin
There are few things that affect the US economy more than consumer spending does and because inflation affects consumer spending, it is closely watched. The Federal Reserve watches and releases the Capacity Utilization Rate as it measures the percentage of available resources being used by manufacturers, mines and utilities. If producers are nearing full capacity, a normal reaction is to raise prices and those higher costs normally are passed on to the consumer. Another report coming out at the same time is Industrial Production, also released by the Federal Reserve. It measures the level of output from manufacturers, mines and utilities. News like this can create volatility in the market making it an opportune time to trade. The release of these reports can be traded using an Iron Condor neutral strategy trading Nadex EUR/USD spreads.
The Federal Reserve will release the numbers at 9:15 AM ET Friday, January 15, 2016. You can enter the trade as early as 8:00 AM ET for 10:00 AM ET expirations. You would buy a lower Nadex EUR/USD spread below the market but with the ceiling where the market is trading at the time of entry. You would sell an upper Nadex EUR/USD spread above the market but with the floor where the market is trading at the time. For this trade, you also want a reward potential of $30 or more combined between the spreads. If this doesn’t seem like much, then you can increase the potential by trading more contracts. Just be sure you keep your Iron Condor balanced and have the same number of contracts on each side. You can use the spread scanner to easily find the right spreads for the trade. Below is an example of the spread scanner displaying EUR/USD spreads.
The Iron Condor is described as neutral because the market can move up or down and your trade is still able to profit. The market need not move in a certain direction. With this strategy, you get to sell above the market and buy below the market. For a trader, that can be described as the best of both worlds. Since you are selling above where the market is, the market could move up to your entry point and the spread you sold would still be break even, while the spread you bought would profit. The reverse is also true. If you bought below the market and the market moves down to your entry point, and the spread you bought would still be break even, while the spread you sold would profit. It is actually in the middle between those points, where you want the market to be at expiration in order to make max profit.
This strategy is for the range bound market or for the market that may move but will probably pull back. Based on market analysis, that is how the EUR/USD tends to react to these news announcements. In case the market breaks out and continues, you need to know where to exit. For this strategy and trade, depending on your exact entry, the market can move 30 pips up or down and your trade will be break even, while if it moves 60 pips up or down that is where it would be at a 1:1 risk reward ratio and you should exit. To profit, the market simply needs to move up or down and one side can profit, and then the market can pull back and the other spread can profit. Alternatively, the market ranges and stays close to or at center between your spreads until expiration and that would be max profit.
For free education on how to trade Nadex binaries and spreads, as well as futures, forex and CFDs, go to www.apexinvesting.com. Nadex is a CFTC regulated exchange located in the US and can be traded from 48 different countries.
