By Darrell Martin
Thursday, December 1, at 4:30 AM ET, Markit, a company specializing in analytics and information, will release the Purchasing Manager’s Index (PMI) for the UK. This index is derived from results based on surveys from 600 purchasing managers regarding the level of business conditions. After compilation, if the actual number is over 50, it indicates industry expansion and below 50 indicates contraction.
The market can react significantly to this news event. Therefore, a strategy prepared for the market to make a significant move, either up or down, is needed. Trading Nadex GBP/USD spreads to set up a Straddle would would work well. This is a low risk strategy that can be entered hours ahead of time at 11:00 PM ET, the night before, for 7:00 AM ET expirations.
Prepared For Either Direction
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. Each spread should have no more than a $20 risk for a combined risk of $40 for the trade. The Straddle strategy literally straddles the market ready for a move in either direction.
Take profit orders should be placed immediately after entering the trade. For this trade, the placement should be where the trade would profit $40 for a 1:1 risk reward ratio. Those points are where the market moves and reaches 80 pips up or down from where the market was at entry.
Should the market reach a take profit order on one side, leave the other spread on. The market may swing around the other direction to make some profit for the other side of the Straddle.
What about stops?
No stops are needed as the risk is comparatively low. More spreads can be traded if desired, as long as both sides have the same number of spreads to keep the strategy in balance.
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