How to Trade the News Using the Straddle Trade Strategy
What if there was a way to make money quickly even if you had no idea whether the market would move up or down?
Itís possible as long as there is sufficient price volatility.
And when can you get this volatility? When news like economic data or central bank announcements is released!
Ideally, you would want to only trade those reports because there is a high probability the market will make a big move after their release.
The next thing you should do is take a look at the range at least 20 minutes before the actual news release.
Note that the smaller the range is the more likely it is you will see a big move from the news report.
The breakout points will be your entry levels.
This is where you want to set your orders. Your stops should be placed approximately 20 pips below and above the breakout points, and your initial targets should be about the same as the range of the breakout levels.
This is known as a straddle trade.
You are looking to play BOTH sides of the trades.
It doesnít matter which direction the price moves, the straddle strategy will have you positioned to take advantage of it.
Now that youíre prepared to enter the market in either direction, all you have to do is wait for the news to come out.
Sometimes you may get triggered in one direction only to find that you get stopped out because the price quickly reverses in the other direction.
However, your other entry will get triggered and if that trade wins, you should recoup your initial losses and come out with a small profit.
A best case scenario would be that only one of your trades gets triggered and the price continues to move in your favor so that you donít incur any losses.
Either way, if done correctly you should still end up positive for the day.
You just want to profit when the move happens.
This allows you take advantage of more trading opportunities because you will be triggered either way.
There are many more strategies for trading the news, but the concepts mentioned in this lesson should always be part of your routine whenever you are working out an approach to taking advantage of news report movements.
A simple but effective strategy for trading the news.
Trading the news can be very profitable if you can correctly guess which way price is going to move. Price can often move 30 or 40 pips very quickly on big news releases, but knowing which way its going to move is very much a gamble, so most traders do not trade the news, as its just too risky, and you often get stopped out, as price moves one way, and then the other. Most traders have experienced this whipsaw effect, when price goes up then down very quickly, or down then up. So it seems no matter which way you trade, you always seem to get stopped out.
Now I look at the markets in a very different way to 95% of traders out there, and I can always see an opportunity in whatever the market throws at me. When you understand why the market moves as it does, you can profit from almost any trading scenario, and trading the news is probably one of the hardest things to make money from, if you do not understand what is happening to price. NowI am not going to go into the ins and outs of price action, and howI use it, but I would like to give you a simple but effective strategy for trading the news.
Now the problem with trading the news is stop losses. When most traders enter trades they set a stop loss. That stop loss could be anything from 10 pips to 30 pips or more if you are trading higher time frames. Now if you are trading the news on the 15 min time frame, and you set a stop loss how big should it be? 10 pips, 20 pips, 30 pips, more? Who knows? I certainly donít, as I donít know how big the move is going to be? So if you donít know how big the move is going to be, how can you set a stop loss? You can set a stop loss above a recent high, or below a recent low, but a big whipsaw like the one in the screenshot will still wipe you out. So what do you do? How can you profit from a move like that? Well I am going to tell you right now.
If you think about what happens in a whipsaw, price moves up, stops out short traders, price moves down, stops out long traders. Now you know price is going up, to stop out shorts, and you know its going down to stop out longs, so this is what you can do. You can enter 2 trades, one long, one short, as close as you can to the the mid price of the move that leads up to the whipsaw. If you look a the screenshot, this would be the middle black line. You set a take profit on both trades of 10 to 15 pips to be safe. You can go for more if the news is big, and you are going to get a bigger whipsaw, an interest rate decision for example.
Now the important part is NOT to set a stop loss. Your take profit becomes the stop loss. Most traders will be trading this with a stop loss, you can trade it with a take profit instead of a stop loss. Price goes up, hits your take profit, price goes down hits your take profit. As price is hitting other traders stop losses, its hitting your take profits. But because you are trading without a stop loss, it does not matter which way price goes first, you are not going to get stopped out, you are only going to get your take profit hit.
Now there are a couple of important things you need to be aware of before you consider whether to use this type of strategy. The news release must be a high impact release, NFP, interest rate decision, FOMC etc. So you know the whipsaw is a high probability move. The market also has to be moving in a tight range before the news is released. This is VERY important. That way the stops are in easy reach of the whipsaw. If price has been going up, or going down before the release, then the whipsaw is less likely to happen. If you have the tight range that you need, you must enter as close to mid price as you can, so you are not exposed at the end of the range. If you are, your 10 or 15 pip take profit may not get hit in both directions.
Something else you can also consider to maximize your profit is to trade this strategy on multiple pairs. If the news is dollar related, you can trade all dollar pairs, if its euro related, you can trade all euro pairs etc etc. As long as you have the tight range you are looking for before the news release you can trade any pair. Trading multiple pairs will also spread your risk a little bit, just in case you do not get the whipsaw on all the pairs. As long as you get it on the majority you can still make plenty of pips, and your take profit should get hit one way or another. If you donít get the whipsaw on every pair, just take off the other trade as close to breakeven as you can. If you are entering at mid price that should not be too hard to get.
A lot of my trading is based on market logic, and this strategy is a logical way you can trade this type of news release. I hope its been enjoyable reading, and made you think about the market a little differently. Making money from trading is all about understanding what is happening on the chart, and thinking outside of the box.
This article has been written for entertainment value only, and I do not make any recommendation to trade this strategy, or any other strategy. I do not know your trading experience, or your financial situation, and I am not qualified to give investment advice. Regards, Rob Taylor.
3 Strategies for Trading News (NFP)
by James Stanley , Currency Strategist
Price action and Macro.
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- Trading news is dangerous as wild and erratic price movements can extend against the trader
- Traders need to be vigilant with risk management, looking to capitalize when on the right side of the move
- We share three different types of strategies for trading during news
The big day is here, and the Non-Farm Payrolls report that much of the world has been waiting for will finally be unveiled tomorrow morning at 8:30AM in New York.
News announcements of this nature can take on a life of their own with the amount of interest they receive. But itís important to note the danger and risks of trading on such events. Nobody in the world has any idea the way that NFP will printÖ and even if they did, there is no way of knowing exactly the way that the market will price that data.
What follows are three ways that traders can look to trade around high-importance news announcements like NFP.
But, before we get into the strategies, Iíd like to stress the danger of trading in such environments. Many professionals choose to avoid trading during high-impact news announcements just because of how dangerous or erratic they can be.
If youíve never traded during one of these events, or if you donít feel comfortable taking on the extraneous risk that is inevitable with such a high-impact announcement, trade on the demo account or sit on the sidelines. There is absolutely no shame in having fear of a market; this is what helps keep traders alive. Bravado or machismo is absolutely worthless if you drain all of your equity.
The ĎSlingshotí Strategy
This strategy looks to capitalize on the mayhem that may ensue during an especially strong print. In this strategy, the trader wants to look to go into NFP with their full position(s), so that if the volatility created around the announcement may be able to push their trade deeply into profitable territory, they can look to take advantage of that.
The slingshot looks to scale out of winning positions as the trade moves in the traderís favor, and a variety of entries or entry strategies can be used to trigger the initial position.
Support and resistance identification is a necessity before opening any positions. Traders can also take this a step further by looking to the hourly or four-hour charts to determine any trends that may exist leading into the announcement. This way, if the biases going into NFP take place after the data is released, the trader can be on the right side of the move.
Support and Resistance is so important because thatís the Ď cut point í with which the trader can close off the position if prices are going to move too far against them. Stops for long positions can go below support, and stops for short positions can go above resistance so that if either of these levels are broken, the loss can be minimized.
The Slingshot Looks to Capitalize from Extended Moves in the Traderís Direction
Prepared by James Stanley
Traders can even incorporate a technical-trigger into the trade with an indicator like MACD like we had explained in the article, MACD as an Entry Trigger .
A key note here: Traders are advised to investigate stop distance on their positions ahead of a data announcement as heavy as NFP. Spreads can widen very quickly as market makers donít want to take a loss on the print just as much as retail traders. When spreads widen, stops can be triggered before prices begin trending and this can be disastrous for the trader.
Imagine the scenario in which you went into NFP with a long EURUSD position carrying a 20 pip stopÖ If spreads widen out to 40 pips, that would trigger your stop and execute the stop order Ďat best.í This could entail additional slippage beyond your 20 pip stop.
But, if prices then trend up 150 pips on the EURUSD you have no position remaining even though you were right in the long position.
Unfortunately, itís impossible to know how widely spreads might spike during any given news release, NFP especially. Traders generally want to investigate a minimum stop distance of 40 pips or more, and even then quick volatility may make the position vulnerable.
This is but another reason that trading in news environments is so dangerous; but the potential rewards could be huge if the trader can find themselves on the right side of the position, and thatís what the slingshot is all about.
If the trader is able to navigate this terrain without getting a stop hit, thatís where the slingshot comes in as traders can scale out of profitable positions as prices may surge in their favor.
The News Reversal
Trading reversals are inherently dangerous in a normal environment; but when adding in the additional risk around news announcements, it can make this type of strategy very dangerous.
Strong money and risk management are a requirement for success in these environments, because youíll never be sure of which reversals may follow-through.
Like the Slingshot strategy, traders want to go into the release with support and resistance levels identified. Then, they wait for the news.
In the immediate period following the news announcement, the trader can watch prices to see if those longer-term support or resistance levels come into play. And if they do, the trader watches to try to get an idea as to whether or not those levels are going to hold.
The News Reversal
Prepared by James Stanley
Price action can be of huge help here. Traders want to see support coming in to the market at these longer-term levels before triggering a long position with a stop below support. The key here is fitting in tightly so that if the reversal doesnít play out, the position is taken out quickly. But if that support level does hold, the trader can begin scaling out once the position starts moving in their favor in an effort to capture as much upside as possible.
The ĎUse the Newsí Long-Term Strategy
Non-Farm Payrolls can be a game changer. A big beat or miss can stop a trend dead in its tracks and create massive reversals.
But this doesnít happen every month. In many cases, enormous volatility is created around the announcement with perhaps some slight follow-through thereafter; only to see trends resuming their previous trajectory.
This can potentially be a huge opportunity for longer-term traders to pick up or add positions at a much more favorable price than they would have otherwise been able to. Letís look at an example for more clarity.
Letís say that Joe is bearish on the EURUSD for whatever reason. Perhaps heís just a really big USD bull, or maybe heís a non-believer in the European Recovery. Whatever the reason, Joe knows he wants to get short EURUSD.
But after spending a month confined to a meager range near long-term support, Joe hasnít had a compelling entry opportunity in the pair.
Joe can go into NFP looking to do some bargain-hunting. He can look at his longer-term chart to establish some resistance levels in which heíd like to sell if prices can make their way up there.
The next step in the process is to wait for the news to come out to see if prices can move up into this resistance zone so that Joe can enact an order.
The ĎUse the Newsí Long-Term Approach
Prepared by James Stanley
Once price moves into resistance, Joe can begin looking to sell with a stop above the resistance zone. Traders can look at a shorter-term chart to look for price action indications of bullish or bearish reversal patterns to increase the potential effectiveness of the strategy.
--- Written by James Stanley
James is available on Twitter @JStanleyFX
Interested in learning more about trading the news? Read our Introduction to Forex News Trading Guide to gain additional insight!
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