Here’s The Basics of How This Strategy Works:
The economists provide an estimate of each news release about a week in advance. The price of the pair moves slowly during the week to account for the estimate. In the mean time, the actual value of the news item, say Gross Domestic Product (GDP) for example, is calculated by a governing body. At a particular day and time, the governing body releases the actual value of the item to the world.If the actual data value(s) are close enough to the estimated value(s), there is very little movement caused in the target currency pairs because the market had correctly anticipated the news and adjusted accordingly beforehand. But the more the actual value deviates from the estimated value, the bigger the adjustment, or spike, will be to compensate for the difference. If we get a spike big enough to hit one of our stop orders, we then have an extremely good live trade, and we’re ‘off to the races’!
If there is no spike, or in other words the estimate and actual were very close to each other, the StraddleTrader software’s job is to get your pending orders cleared out as fast as possible to prevent either from going live.
One of the biggest challenges we faced in the development of the StraddleTrader was to provide a mechanism to get the pending orders out really fast in the event the news release did not cause a spike. Some news events come out a few seconds late, and some news releases have multiple components or data points which do not necessarily come out at the exact same time.
The solution? Our approach to this was to build an interface into the Pro version to multiple news release data feeds, so the software is intelligent enough to know when the news release actually happens, instead of just looking for the change in market direction.
Now, with the right setup parameters, you are assured that your pending orders will be taken out much faster than any manual approach could accomplish, giving you yet another tool to protect you from losses. This turns the StraddleTrader into a very effective weapon in the battle for greater profits and fewer losses.
Strategy in a Nutshell
The basic concept behind the StraddleTrader is to enter a Buy stop and Sell stop order as close to the release of a major news announcement as possible, preferably with a second or less to go before the announcement. This is a simple concept, but obviously timing is very important. Without the right software, it is impossible to time these big moves because it all happens so fast.A stop order is nothing more than a pending market order, placed at some distance above and/or below the current price of a particular pair and that will be changed to a live order if the pair moves up or down far enough to hit the order entry price. The order will be taken in as a Buy if the market price moves up enough to hit its entry price. Or the order will be taken in as a Sell if the market moves down far enough to hit its entry price.
The StraddleTrader software places both a Buy stop and a Sell stop a close distance away from the current price of the pair. The orders are placed as close to the release time of a major news event as possible to reduce the likelihood that normal pre-news market movement will cause one of the orders to become a live order before the news announcement is released. How close the orders are placed to the news event is in the users control with settable parameters built into the software.
Once one of the orders goes live, the StraddleTrader attempts to assist by removing the other (still pending) order if the live order becomes profitable by 5 pips or more and also sets the live order stop loss to zero at that point. It is up to you as the user to take the live order out at whatever time you want, depending on your appetite for profits. There is a StraddleTrader Pro function built in to handle this.
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