Can you imagine a scenario where you could make money in the market no matter which direction it decided to move? Believe it or not, there are strategies that can help make that a reality for you. One such strategy is known as the straddle trade, and it can help you become profitable no matter if you are seeing major movement upward or downward in the market.
The only thing that you need to be profitable using this strategy is significant movements in the market in one direction or the other. One of the periods of time when this may prove to be the most profitable for you is during a news release.
News releases often cause the market to make a major move in one direction or the other. If you aren’t sure which way it will go, you can always attempt a straddle trade to make the most of the trade either way.
You will want to look at the range of prices that the currency pair has traded at 20 minutes or so before the news release. You can use this data to set high points and low points for your straddle trade. After all, you need to know where the currency pair has been recently to get some idea of what an outsized move might look like.
Place your stops approximately 20 pips outside of the breakout points. This can allow you to capitalize on a big move in either direction before there is a correction that causes the pair to move back in another way.
You are trying to get in on both sides of the trade. It doesn’t matter much to you which way the currency ultimately ends up going. The only thing you care about is that it moves significantly in one direction or another.
A few rules of thumb with this type of straddle trade:
- Your entries to the upside and downside shold be outside of your breakout range
- Stop-losses should be placed about 20 pips below and above the breakout points
- Your initial target take-profit areas should be approximately the same size as the range of breakout levels
The news may cause the currency to temporarily spike in one direction or another, but it may correct just as quickly back towards the point where it first started. Thus, you will need to keep your stops tight in order to avoid losing out on some potential gains in the market. If you pull this trade off just right, then you should be able to make a profit as long as there is a significant jump in the price in either direction.
Keep your eye on how things like this play out, and you may be capable of doing quite well for yourself based on what the market decides to do after a big news event.