Straddle Trade example

December 14th, 2007 expert Posted in FOREX TRADING ENTRY STRATEGIES, FOREX TRADING EXIT STRATEGIES |

Online Forex Trading concepts: Straddle trading, triangle, expectations, Trendlines.

The market sometimes shows signs of a possible high energy breakout, but it is not always clear which way the price will break.

Therefore instead of trying to 2nd guess the market direction one can place a buy and a sell entry order on either side of the price (straddle the price).

Whichever way the market moves it will activate one of the orders and you will be in the direction of the break.

When To Straddle Trade
*Before an announcement
*Price formation breakouts
*Periods of uncertainty
*Market openings (public holidays or weekends)
*Break of important support or resistance.

The first step is to identify a potential transaction. Below is an example of a triangle developing which sometimes provides breakout opportunities.

The next step is to determine the potential expectation on the transaction. With triangles this is normally the height of the triangle at the start of its formation.

The next step is to determine  your risk (where your stop should go) so that we can determine whether the risk / return ratio and capital risk acceptable?

Buy:
Expectation   110
Risk               40
Risk / return  2.7 / 1
Sell
Expectation       110
Risk               40
Risk / return  2.7 / 1

The next step is to place sell and buy entry orders (supported by targets and stops) at the breakout points. Now the market will determine the breakout direction.