A Strategy To Play UK Manufacturing News

Certain reports and numbers regarding economies come out on a regular scheduled basis. By tracking market reaction to these news events, you can look for and find consistencies in the distance of the moves and the kind of moves the market makes.

Based on the kind of move and distance, you can decide on a strategy and trade it the next time that news report comes out. Based on analysis done on GBP/USD by Apex Investing, it was found that when the Manufacturing Purchasing Managers Index (PMI) news was released by Markit for the UK, GBP/USD could make quite a significant move in either direction.

For this kind of move, a Straddle strategy using Nadex spreads is a high probability trade for this news event. Markit bases the results of 600 surveyed purchasing managers from the manufacturing industry regarding business conditions and determines the index number.

Above 50.0 indicates expansion for manufacturing while below indicates contraction. If actual is above what is forecast, it is good for currency. However, with this setup knowing the direction the market may move is not necessary. The advantage to the Straddle is it can profit regardless of direction because you enter two spreads, one for each direction.

Opportunity To Profit In Either Direction Market Goes

The report is released at 4:30 AM ET Tuesday, March 1, 2016.

This strategy is a low risk strategy and stops aren’t necessary. To enter, one can buy a Nadex GBP/USD spread above the market but with its floor where the market is trading at the time or close to it for a $20 or less risk.

One can also sell a Nadex GBP/USD spread below the market but with its ceiling where the market is trading at the time or close to it for a $20 or less risk. 

For this straddle, the market needs to move 80 pips up or down for a 1:1 risk/reward ratio.