By Darrell Martin
Tuesday, May 24, at 10:00 AM ET, US New Home Sales will be released. The sale of new homes triggers activity throughout the economy. New homes need furnishings, window treatments, appliances, and even mortgages. It’s a leading economic indicator and makes for a trade opportunity when the EUR/USD reacts.
Using Nadex EUR/USD spreads, an Iron Condor strategy can be traded, entered at 9:00 AM ET for 11:00 AM ET expirations. News is difficult to trade because it is unknown which direction the market will go. With the Iron Condor set up, trading two spreads in both directions, the trade can profit whichever direction the market moves in reaction to the news.
Buy a lower spread below the market but with the ceiling where the market is trading at the time, and sell an upper spread above the market but with the floor where the market is trading at the time. Based on the market moving an average of 30 pips after previous reports, the profit potential for this trade should be $30 or more combined between the spreads.
Once the news is released, the market tends to make a move and then pulls back. This strategy buys below the market and sells above the market. Therefore, as long as the market settles anywhere in between the breakeven points, the trade will profit. Max profit is when the market is right between the spreads at expiration. To trade more contracts, make sure there is the same number of contracts on each side.
The advantage of trading spreads is the capped risk. Depending on if a spread is bought or sold, it will not lose past the floor or the ceiling. Even with capped risk, there still needs to be stops setup to keep risk realistic to a 1:1 risk/reward ratio. For this trade, the risk/reward ratio points are 60 pips up and down and the breakeven points are 30 pips up and down.
To find the right spreads for the trade, beginning and seasoned traders use the spread scanner where all the details of the spreads can be seen at a glance in one window. The reward potential can be easily noticed to find the spreads with the right profit potential. See below for an example of the spread scanner.
The spread scanner can be accessed at www.apexinvesting.com along with free education for trading.
