By Darrell Martin
Friday, January 19, at 8:30 AM EST, Statistics Canada will release reports concerning foreign securities purchased by Canadians and foreign investors alike. Since these transactions require residents to exchange their Canadian dollars to foreign currencies, or alternately, foreign currency to be exchanged to Canadian dollars, it can have an impact on the CAD market.
This movement in the market creates an opportunity for trading. Since the direction of the movement is unknown, a low risk strategy, such as the iron condor is a good choice to retrieve from your trading arsenal.
Using Nadex USD/CAD spreads, buy one spread trading the bottom range of the market, and one sold spread trading the range directly above the bought spread. The ceiling of the bought spread should meet the floor of the sold spread and be where the market is trading at the time.
To set up this trade, each spread should have a profit potential of at least $12 for a combined minimum profit potential of $25. Enter as early as 8:00 AM ET for 10:00 AM ET expiring spreads.
The market tends to move and then pull back in response to the news event. For this kind of movement and strategy, trading Nadex USD/CAD spreads presents a high probability trade. Risk is capped at the floor and the ceiling of the spreads but risk can be further managed with stops. For this trade with a $25 profit potential, if the market takes off and moves 50 pips above or below from where it was at entry, it will reach the 1:1 risk reward ratio points. That is where to place stops.
In this trade, also consider the level of implied volatility. If it is high in the market, then there will be more profit potential available in the spreads. Likewise, if volatility is low, there may be very little profit potential. In that case, there would be no trade.
The key to profiting in an Iron Condor spread is for the market to settle somewhere within the desired range from where it started. As long as the market settles somewhere within the 50 pip range of 25 pips above and below from where it started, the trade will profit. With time expired and the market settled between the two spreads, max profit is realized.
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