Canadian Trade Balance, Time To Straddle USD/CAD

A country's trade balance reflects the difference between the goods and services imported and exported. If the value of goods and services exported is greater than the value of those imported, the trade balance number will be positive. And if that number is higher than expected, that's a good indicator for the economy in question.

The Canadian Trade Balance, which will be released Wednesday at 8:30 a.m. ET tends to get the USD/CAD moving, and makes for a trade opportunity using a Straddle strategy trading Nadex spreads.

Straddles are ideal when it is expected a market will make a somewhat significant move in either direction, and the strategy is low risk because it doesn't require stops. Using Nadex spreads, a day trading option with defined risk up front, the strategy is set to trade the market long and short. A spread has a floor and a ceiling, denoting the bottom and top of the range in the market that is traded long or short. For this setup, a spread is bought with the floor of wherever the market is trading at the time of entry, and a spread is sold with the ceiling of wherever the market is trading at the time of entry. Effectively, the spreads are straddling the market.

Each spread should have a max risk of approximately $20, for a max combined risk of approximately $40. The trade can be entered as early as 8:00 a.m. ET, for the two-hour 10:00 a.m. ET expiring spreads.

Since the total risk is a max of $40, the market needs to move 80 pips up or down for the trade to profit $40 and have a 1:1 risk/reward ratio. To visualize this, notice that the risk is $20 for each side. Therefore, if the market moves up 20 pips, the upper spread is now at breakeven and the lower spread is -$20. To see the results from movement in either direction, see the image below.

Once the trade has been placed, take profit orders need to be set where the market would hit 80 pips up or down. From the chart, notice if the market moves up or down 40 pips, the trade is at breakeven.