By Darrell Martin
In the first and second parts of this series, you were shown how the availability of worldwide trading sessions along analyzing the history of news reports can work together to help you in your trading. This article will present the different strategies that can be used to trade the news reports.
After analyzing your charts and the history of the news reports, you can then choose the strategy that will bring you the best results based on what you think the report will cause to happen in the market. Consider how far the market expects the market to move today. It is important to have proper expectations when choosing your trading strategies. Deviation levels and implied volatility help you ascertain the 1:1 risk/reward level and the expected movement. The following will help you understand each of the popular possible trading strategies.
Strangle
This strategy is used when you expect movement, but you may not know which direction the market will move. It is executed before the news release. It involves buying and selling Out of the Money (OTM) binary option contracts on both sides of your trade. For this strategy, sell the lower contract and buy the upper contract. It has low risk because both contracts are OTM. You want 1:1 risk/reward minimum taking into account that you expect one side to lose and one side to profit. If the market retraces prior to expiration, it is possible to profit on both sides.
Insure that you have at least a 1:1 risk/reward, as there is risk on both binaries. The reward side needs to cover the loss on the other side.
Directional
After analyzing the history of the news trades, you can place a trade directionally. You can trade directionally before or after the news or on a pull back. Your risk is capped and your trade is protected from spikes when trading Nadex binary options.
Butterflies
This strategy is ideal for a news release that has shown low volatility. You want to choose an expiration shortly after the news comes out. This strategy is opposite the strangle strategy. It involves buying and selling In the Money (ITM) binary options. You are looking for $15-25 of max profit on each side of the buy and sell contracts with close to an equal distance from where the market is currently trading. Buy a lower contract and sell an upper contract. You want the market to settle between your contracts allowing you to profit on both sides.
Summary
Look for high impact expected government news reports. Don’t hold the binary contract until expiration. Exit when the underlying hits the expected move or strike. Choose your strikes based on deviation levels and your historical analyzation. . There are news reports being released constantly, which affect your trading, whether it is day or night wherever you are trading. Take advantage of the movement this offers.