By Darrell Martin
Every month, Purchasing Managers from the services industry in the UK are surveyed to find what their views are on the current business conditions. Items surveyed include employment, production, new orders, pricing, etc. Markit does the survey and from the data, the Services Purchasing Managers’ Index is released. Managers in businesses have to stay apprised of current market conditions and react quickly to any changes. For this reason, traders pay attention to this report.
This news can cause the market to react. It is always unknown which direction a market will go, however if there is some consistency in distance and kind of movement, a strategy can be determined for trading the news event. In the past, with this news, the market has tended to take off making a Straddle strategy ready for a big move in either direction a good choice. The Services PMI for the UK will be released Monday, December 5, at 4:30 AM ET.
To set this trade up, two Nadex GBP/USD spreads are chosen. One is bought with the floor where the market is trading at the time. Another spread is sold with the ceiling where the market is trading at the time. In this way, the ceiling of the sold spread meets the floor of the bought spread and is where the market is at the time of entry. Fortunately, this trade can be entered as early as the night before at 11:00 AM ET for 7:00 AM ET expirations.
Maximum risk for each spread should be no more than $20, with $40 being the combined max risk for the trade. The spread scanner should be used to quickly find the right spreads and easily execute the trade. Each spread shows the profit and loss visually by color and number, whether selling it or buying it. See below for the layout. The spread scanner includes all pertinent information at a glance to decisively choose spreads.
A 1:1 risk reward ratio would mean profiting by $40 since the max risk was $40. With this in mind, take profit orders should be placed where the market will move to reach those points. In addition, when the market moves one direction, the other spread will lose and this loss needs to be made up in the profit from the trade. If the max risk from both spreads is approximately $20, then the breakeven point for the trade will be 40 pips above and below from where the market started. The next 40 pips in the same direction will be profit. Therefore, take profit orders should be placed 80 pips above and below from where the market was at entry. With such low risk, no stops are necessary.
Free access to the spread scanner as well as free education and a complete news calendar is available at www.apexinvesting.com.