Using A Straddle Strategy To Anticipate News The Evening Before It Breaks

Come Thursday, January 5, the UK Services Purchasing Manager’s Index report will be released at 4:30 AM ET. This is a level of diffusion index and is based on survey data taken from Purchasing Managers regarding current business conditions. A number above 50.0 indicates that the services industry expanded, anywhere below that suggests contraction. Since September 2016, the number has been 52.9 or greater. This news can have a substantial impact on the markets if the GBP/USD makes a large enough move to allow a Straddle strategy to be a high probability trade.

This strategy is low risk enough that stops are not required. Trading Nadex GBP/USD spreads, the strategy requires having one bought spread whose floor is where the market is trading and one sold spread whose ceiling is where the market is trading. Each spread should have a maximum risk of $20, for a total combined risk of $40 or less.

While stops are not necessary, take profit orders are. For a 1:1 risk-reward ratio, take profit orders should be placed 80 pips above and below from where the market was trading at entry. At those points, the loss of one side should be covered along with enough profit to make it worth the risk of the trade. If the market takes off and reaches 40 pips above or below entry, the trade will be at a breakeven point.

Once one side profits, the other spread can be left on. If the market pulls back, it may go so far as to reduce the loss of the spread or even make some profit as well. Be sure to cancel any unneeded take profit orders once one side has profited.

This trade can be entered the evening before at 11:00 PM ET for 7:00 AM ET expiration.

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