By Darrell Martin
Markit, a leading world information and analytics company, will release the Services Purchasing Manager’s Index, (PMI) on Wednesday, July 5, at 4:30 AM ET. In reaction, the GBP/USD can make some large moves, offering a trade opportunity with the right strategy. Using Nadex spreads and a low risk straddle strategy, the trade can be entered the night before on Tuesday at 11:00 PM ET.
For a news trade, where the outcome of the news and thereby, the direction the market will go are both unknown, the straddle strategy is ideal. The setup includes two Nadex GBP/USD spreads literally straddling where the market is trading at the time of entry, and prepared to profit either direction the market goes.
One spread is bought with its floor where the market is trading at the time. The other spread is sold with its ceiling where the market is trading at the time and meets the floor of the bought spread. Another advantage to the straddle strategy is low risk. Each spread should only have a maximum risk of approximately $20, for around $40 combined for the trade. Risk is capped at the ceiling of the sold spread and floor of the bought spread, which makes it unnecessary for any stops.
However, it is wise to set take profit orders where the market would reach 80 pips above and below where the market was at entry. Once the market reaches 40 pips above or below, the risk of the trade will be covered and should the market go another 40 pips, the trade will make $40 in profit. As previously stated, this trade can be entered the evening before at 11:00 PM ET for the 7:00 AM ET expiring spreads. The trade can be put on before bed for the opportunity to wake up to morning profits.
Apex Investing offers free day trading education and free access to the pro spread scanner at www.apexinvesting.com.