How To Sell High And Buy Low For A News Event

Just like the US has the Federal Reserve to adjust our interest rates, the UK has the Bank of England for their decision-making on rate changes and monetary policy. Coming Thursday, December 10 at 7:00 a.m. ET, the Bank of England will release the Monetary Policy Committee Official Bank Rate Votes, Monetary Policy Summary and Official Bank Rate reports. This news can make for an eventful trade using Nadex spreads and an Iron Condor strategy.

The release is at 7:00 AM ET and the trade can be entered as early as 6:00 a.m. ET for 8:00 a.m. ET expiration. For an Iron Condor strategy, you trade two spreads that range the market. A spread has a floor and a ceiling. You can trade them long or short and you won’t lose or win past the floor or ceiling. Therefore, you know what your max risk is up front. To enter, you put up your max risk, although you’re not risking that full amount because you will have stops or you will exit manually. Compared to the unlimited risk involved in spot forex, the max risk with Nadex spreads is nominal and defined before entry.

For this Iron Condor, you will buy a Nadex GBP/USD spread below the market with its ceiling being where the market is trading at the time of entry. You also will sell a Nadex GBP/USD spread above the market with its floor where the market is trading at the time of entry. As stated, you are essentially selling above where the market is, and buying below where the market is. So the market can move all the way up to where you sold your spread and you will still be breakeven on that spread. Or, the market can go down all the way to where you bought the other spread and you would be breakeven on that spread. Can you see the advantage here?

How Far Up To Sell High And How Far Down To Buy Low

Understanding the setup of the Iron Condor and the advantage you have, the other necessary piece of information you need to know is the amount of profit potential for this particular trade. It’s no use selling above the market for a news event and buying below the market for a news event, if you don’t know what the average move will be. For this news event it is recommended, based on 12 - 24 past reports and market reaction to them, to set up for a profit potential of $30 or more combined between your spreads. This means each spread should have a reward potential of around $15 or more.

That may seem like a small profit potential. It may be little profit potential however; you can always trade more contracts. You only need to be sure you sell the same number of contracts that you buy, so you have the same number on both sides to balance your Iron Condor. You may wonder how to find and choose these spreads. To find the spreads is quite easy. You need a demo or live account at Nadex, which takes just minutes to open. Then you visit www.apexinvesting.com and open their spread scanner.

Below you can see a display of Nadex GBP/USD spreads on the spread scanner. You can see the spreads are listed down the center and the Risk/Reward is listed in the outside columns, on the left side for selling a spread, and on the right side for buying a spread. First, find the spreads with the right ceiling and floor parameters, and then make sure they have the right reward potential. Once the spreads meet those requirements, you are set to enter both sides of the trade.

To view image click HERE.

Where do you place your stops? Where should you call the trade and exit to manage risk? Remember how you are selling above where the market is and you are buying below where the market is? If you enter with about $15 of reward potential for each spread, then the market can move 30 pips up or down and your trade is break even. For a 1:1 risk reward ratio the market can move 60 pips up or down. That is where it is recommended to call the trade and exit or set stops.

For this news event however, it’s been found that the market tends to move and then pull back or to just stay in a range, which is ideal for this strategy. If the market settles at expiration somewhere in between the range of 30 pips up or 30 pips down from entry, then you will have some profit. When the trade expires and the market returns to, or has ranged and is where it started from, right between your spreads, is known as max profit. It is only $1 less in profit for every one tick away the market is from the center of your spreads at expiration. One side of your trade may take profit first if the market makes a move in a direction, and then as it pulls back, the other side may profit.

For more information on strategies and trading the news, please visit www.apexinvesting.com. There you will find free education on how to trade Nadex binaries and spreads, as well as futures, forex and CFDs.