4 min read
What if there was a trading strategy that works regardless of the direction of the trend? Well, it exists, and it's called the straddle strategy. Is it really possible to speculate on the financial markets when it is not possible to predict the exact direction of the price trend? You will find out by reading this article.
The straddle strategy relies more on volatility than price. Obviously, the price plays an important role (as always happens in trading), but without a fairly high momentum the straddle does not work.
Since volatility is the fundamental condition for the proper functioning of the strategy, first it will be necessary to understand at what times volatility is at its highest. The most important events and announcements generally cause volatility spikes. What news do we need? Since the USD is the international reserve currency, the most important news comes from the United States. Geopolitical news, inflation statements and reference rate announcements are extremely important. And remember: the greater the scope of news, the greater will be the volatility. Minor news usually does not generate significant price movements.
Now let's see the strategy itself. Once a promising event has been identified, the announcement must be evaluated. This information will help you later determine the entry and exit points. Assets are generally traded in a narrow corridor before major announcements. The maximum and minimum of the corridor are generally used as pierce points (entry points).
Now that you know the recent price behavior and you've identified the entry points it's time to determine the exit points. To do this, traders generally take the difference between maximum and minimum e 1) add it to the maximum is 2) subtract it to the minimum. According to the defenders of this trading strategy it is preferable to use stop losses. The result is a draft of two operations, one for upward movement and one for downward movement.
From now on, the price will follow one of the two main scenarios. First, it could reach one of the entry points e keep moving in the same direction. Alternatively, it could reach one of the entry points, undergo an inversion and keep moving in the opposite direction.
Beware, this strategy can be quite risky. An insufficient price movement could leave you with a losing operation in your hands!
One of the advantages of this strategy is that it allows you to eliminate the emotional component from trading. Once the asset reaches a predetermined threshold, you can open or close the operation in the same way.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
GENERAL INFORMATION ON RISKS:
CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.
Source: IQOption blog 2018-11-23 13:14:50