The Straddle Trade Stock Market Brief
Stock-Markets / Stock Market 2017 Mar 16, 2017 - 05:43 PM GMT
Day Trade the News with Straddle Trades.
As part of my trading system I have 7 day trading strategies that I utilise. One such strategy employed is the straddle. This strategy I use to: “trade the news”. (I list all the other 6 strategies below for review. Over the next few months I hope to explain each in greater detail and provide examples of their technical set-up and actual execution).
The Straddle Trade.
The straddle trade strategy takes advantage of major market moving news events. It involves placing a long and short trade simultaneously. Once the trend is identified, following news release, the negative side of the trade is closed (or allowed stop out) and the positive side is allowed to run until technical break down occurs or profits are banked by personal choice.
Up to two years ago I always used options to execute such trades but with the brilliant development of state of the art trading platforms I not use spread betting instruments. Spread betting has the added advantage that profits are tax free. I have opted for the IG Markets platform, but there are many other excellent platform providers to choose from.
Straddle Trade Execution.
Place the straddle trade near the close of the trading the day before the major news announcement.
Normally I place a 10 Euro “bet” on the Wall Street DFB (Daily Funded Bet). This is the financial instrument IG Markets uses to track the Dow Jones Industrial Average. This means that for every point move in the index I will win or lose 10 Euro. If I reckon the trend is going to go up I BUY the DFB. If the trend is expected to go down I SELL the DFB. I normally use a 200 point sell stop, which means my maximum loss on the trade will be 2,000 Euro.
Depending on the announcement (the market may take a day or two to “filter” the news) I close the loosing position or let it stop out. I stick with the winning trade until I see a technical breakdown happening. This allows me stay with the momentum trend, which regularly follows such events, as long as possible. (Trading rule 3: “Cut your losses early, let your winners run”).
For Your Straddle Diary.
For those of you interested in such straddle trades, please note the following 2017 major news events:
FED Meetings: May 2-3, 2017.
June 13-14, 2017.
July 25-26, 2017.
Sept 19-20, 2017.
Oct/Nov 31-1, 2017.
Dec 12-13, 2017.
French Presidential Elections:
Round 1: April 23, 2017.
Round 2: May 7th. 2017.
German Federal Elections:
24th. September 2017.
Addendum: Summary of the 6 Additional Day Trading Strategies I Use.
1. Arbitrage Trade
The Arbitrage Trade seeks to activate trades that have a high probability of success by utilizing early bearish or bullish movement on the Wall St DBT to trade the German DAX or vice versa.
2. Momentum Trade.
With the momentum strategy one aims to enter a strong trend and remain in the position as long as technicals are supportive.
3. Swing/Continuation Pattern Trade.
The objective of this strategy is to identify high probability swing or continuation pattern trades.
A. Flag Formation.
The flag pattern forms what looks like a rectangle. The rectangle is formed by two parallel trend lines that act as support and resistance for the price until the price breaks out. In general, the flag will not be perfectly flat but will have its trend lines sloping.
B. Pennant Formation.
The pennant forms what looks like a symmetrical triangle, where the support and resistance trend lines converge towards each other.
C. Descending Triangle Formation.
The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. No one can tell for sure how long it will last. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending triangles are bearish patterns that indicate distribution.
D. Ascending Triangle Formation.
As above but the ascending triangle is a bullish formation that usually forms during an upward trend as a continuation pattern.
4. Bollinger Band Trade
The Bollinger Band Squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow. Periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move.
5. Channel/Range Trade.
In the context of technical analysis, a channel is defined as the area between two parallel lines and is often taken as a measure of a trading range. The upper trend line connects price peaks (highs) or closes, and the lower trend line connects lows or closes.
6. Candlestick Pattern Trades
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
A. Formation: Hammer.
The hammer pattern normally appears when a short term down trend is about to change. The longer the length of the taper the better.
B. Formation: Bullish Engulfing.
With the bullish engulfing formation pattern the longer the bullish candle the higher the probability that the BUY move it indicates will persist.
C. Formation: Bearish Engulfing.
The bearish engulfing formation pattern indicates the higher the probability that a SELL price movement is in the ascendance.
D. Formation: Shooting Star.
The shooting star pattern normally appears when a short term up-trend is about to change. The longer the length of the taper the better.
E. Formation: Doji.
The Doji pattern normally appears when there is complete indecision as to future trend. The next significant candle that appears after the Doji is used to anticipate trend.
F. Formation: Spinning Top.
Like the Hammer the Spinning Top pattern normally appears when a short term down trend is about to change. The longer the length of the taper the better
Christopher Quiqley
B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie
Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.
Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web sites based in California, New York, London and Dublin.
Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.
© 2017 Copyright Christopher M. Quigley - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
Christopher M. Quigley Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
