In the previous lesson, we covered how you can make money if you knew the direction the market was going to move. In this lesson, we will show you how you can make money if you have no idea about the direction the market is going to move.
When there is high volatility in the market, especially as a result of a news release, it is possible to achieve this. Note that this strategy is different from trading with a directional bias.
Let’s break it down!
Firstly, you have to aware of an upcoming high-impact news release. Unlike trading with a directional bias, you don’t have to familiarise yourself with the direction the news will move the market. All you have to know is that the market will significantly move.
Let’s say, for example, that a news release is scheduled for 8.30 AM. Using the 5-minute timeframe, observe the trend for the past 30 minutes and establish the support and resistance levels. You will use these levels to set a buy stop and sell stop order.
With the buy stop orders, if the price breaks above the resistance level, a long order will be triggered. In the sell stop order, if the price breaks below the support level, a sell order will be triggered. Let’s use the news release of the US unemployment rate on October 2, 2020, at 8.30 AM EST.
Here’s the logic behind the straddle strategy. If the news is significant enough to break through the support level, then it is plausible for the bullish trend to continue in the short term. Conversely, if the news release is significant enough to blow the price past the support level, then the bearish trend might progress in the short-term.
Note that you can pre-set your ‘take profit’ and ‘stop-loss’ levels when using the forex pending order types. Doing this ensures that you get to determine your absolute downside in case a trend doesn’t hold. Furthermore, you can opt for only the ‘trailing stop order’ alongside the stop orders. Your ‘stop-loss’ value is not fixed with the trailing stop, which increases your exposure to the upside.
For instance, if, in the above example, we had set our take profit level at ten pips, we would have only made the ten pips. But, if we used the trailing stop order instead, we would have gained more than the ten pips. Cheers!