Top Trading Techniques

By David Curran

The Straddle

When you first started trading, have you ever come up with the idea of placing an entry order above the current market position and also placing an order below the current price?

This way, you will catch a trade if the price goes up or if the price comes down.

Probably, without knowing it, you have placed a trade called a “Straddle”, but does this type of strategy really work?

It makes perfect sense to trade this way because you are positioning yourself to catch the market whichever direction it goes. This is smart thinking, but there are tricks to trading a “Straddle” and they come in two parts.

Selecting the correct area for the “Straddle” to be placed.
Selecting the correct position for your entry, stop loss area, and take profit area.

The main methodology when trading a “Straddle” is to use the opposite entry line as your stop loss.
So when the short trade is triggered, you place your stop loss at the line of the long entry, but if the price swings up after your you have opened a short trade, you are protected with a small loss and you have your long entry order in place to catch the up move.
See the diagram below.

Perfect, now you are ready to catch plenty of pips whichever way the price goes.
If you are fairly new to trading, you will not see the dangers involved in this method at this point, but those of you with experience will spot it straight away.

The Straddle has been placed in the wrong position.

Take a look at the next diagram

This is a live chart and has not been edited in any way. The “Straddle” was placed in a position that had every chance of the price swinging to open the short trade and then swinging up and hit the stop loss order. Also, after opening the long order, it is swinging down again to close the trade out at a loss.

You can see the problem with trading the “Straddle”.

Now, we have seen how not to trade the “Straddle”, so how are we going to trade it correctly?
First of all, we have to understand that the “Straddle” is a breakout strategy, and like all breakout strategies we have to use some form of support and resistance for our “Straddle”.

When you define the word “Straddle”, it means to be on either side of something, and this is what we must look for in our set-ups on the charts.

On this image above, you will have noticed that the price action is going in a flat direction. This normally indicates either a quiet time of the day in the market or when traders are waiting for something to happen. You often see this flat price action just before a big new announcement as traders don`t want to be caught on the wrong side of a trade, so they are sitting on the sidelines waiting.

This is the correct time to use a “Straddle trade”. If the price breaks to the down side, use the upper line as a stop loss point and an entry point to go long. If the price breaks to the upside, use the lower line as the stop loss point and a place to go short.

Profit Target
Your profit target should be at least the amount you are risking, but it would be far better to use a target of twice your risk or even 3 times of it.

If you worked on a money management strategy of 3 to 1, you can afford to get a few selections wrong and still make a handsome profit.

In fact, it would mean that you could be wrong 70% of the time (That`s 7 trades out of every 10) and still come away making money.

Looking at the diagram above, you will have noticed the “Straddle” was 45 pips in size from the top to the bottom. So when the price broke out of the top of the “Straddle”, the stop loss would have been 45 pips away.

Having a stop loss of 45 pips means we were looking for a risk to reward ratio of 3 to 1 on this trade, so our target would have been 3 x 45 pips = 135 pips.

This target of 135 pips was achieved.

The Bollinger Band Straddle.
Another way to use the “straddle” technique is to let the Bollinger Bands help us identify the set-ups.

When the markets are active, the Bollinger Bands are far apart, but when the markets are quiet they move closer together. If they stay close together for a period of time, it’s an excellent condition to use the “Straddle”.

From this image above, you can see when the Bollinger Bands move tight together and stay narrow for some time, a big move is not too far away.

This is the perfect Bollinger Band “Straddle” as it meets all the requirements. The price has become inactive and the bands have moved tight together.

Entry orders will be placed at the “Straddle” lines:

Long order at the top “Straddle” line and the stop loss order at the lower “Straddle” line.
Short order at the bottom “Straddle” line, and the stop loss order at the higher “Straddle” line
A take limit profit order x3 of the risk

When placed correctly, the “Straddle” technique is a powerful tool in your trading armoury and has a high probability of catching good risk to reward trades.

Happy Trading
David Curran

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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

ClickBank is a registered trademark of Keynetics Inc., a Delaware corporation. ForexAvenger.com is not affiliated with Keynetics Inc. in any way, nor does Keynetics Inc. sponsor or approve any ForexAvenger.com products. Keynetics Inc. expresses no opinion as to the correctness of any of the statements made by ForexAvenger.com in the materials on this Web page.



	Top Trading Techniques By David Curran The Straddle When you first started trading, have you ever come up with the idea of placing an entry order above the current market position and also placing an order below the current price? This way, you will catch a trade if the price goes up or if the price comes down. Probably, without knowing it, you have placed a trade called a “Straddle”, but does this type of strategy really work? It makes perfect sense to trade this way because you are positioning yourself to catch the market whichever direction it goes. This is smart thinking, but there are tricks to trading a “Straddle” and they come in two parts. Selecting the correct area for the “Straddle” to be placed. Selecting the correct position for your entry, stop loss area, and take profit area. The main methodology when trading a “Straddle” is to use the opposite entry line as your stop loss. So when the short trade is triggered, you place your stop loss at the line of the long entry, but if the price swings up after your you have opened a short trade, you are protected with a small loss and you have your long entry order in place to catch the up move. See the diagram below. Perfect, now you are ready to catch plenty of pips whichever way the price goes. If you are fairly new to trading, you will not see the dangers involved in this method at this point, but those of you with experience will spot it straight away. The Straddle has been placed in the wrong position. Take a look at the next diagram This is a live chart and has not been edited in any way. The “Straddle” was placed in a position that had every chance of the price swinging to open the short trade and then swinging up and hit the stop loss order. Also, after opening the long order, it is swinging down again to close the trade out at a loss. You can see the problem with trading the “Straddle”. Now, we have seen how not to trade the “Straddle”, so how are we going to trade it correctly? First of all, we have to understand that the “Straddle” is a breakout strategy, and like all breakout strategies we have to use some form of support and resistance for our “Straddle”. When you define the word “Straddle”, it means to be on either side of something, and this is what we must look for in our set-ups on the charts. On this image above, you will have noticed that the price action is going in a flat direction. This normally indicates either a quiet time of the day in the market or when traders are waiting for something to happen. You often see this flat price action just before a big new announcement as traders don`t want to be caught on the wrong side of a trade, so they are sitting on the sidelines waiting. This is the correct time to use a “Straddle trade”. If the price breaks to the down side, use the upper line as a stop loss point and an entry point to go long. If the price breaks to the upside, use the lower line as the stop loss point and a place to go short. Profit Target Your profit target should be at least the amount you are risking, but it would be far better to use a target of twice your risk or even 3 times of it. If you worked on a money management strategy of 3 to 1, you can afford to get a few selections wrong and still make a handsome profit. In fact, it would mean that you could be wrong 70% of the time (That`s 7 trades out of every 10) and still come away making money. Looking at the diagram above, you will have noticed the “Straddle” was 45 pips in size from the top to the bottom. So when the price broke out of the top of the “Straddle”, the stop loss would have been 45 pips away. Having a stop loss of 45 pips means we were looking for a risk to reward ratio of 3 to 1 on this trade, so our target would have been 3 x 45 pips = 135 pips. This target of 135 pips was achieved. The Bollinger Band Straddle. Another way to use the “straddle” technique is to let the Bollinger Bands help us identify the set-ups. When the markets are active, the Bollinger Bands are far apart, but when the markets are quiet they move closer together. If they stay close together for a period of time, it’s an excellent condition to use the “Straddle”. From this image above, you can see when the Bollinger Bands move tight together and stay narrow for some time, a big move is not too far away. This is the perfect Bollinger Band “Straddle” as it meets all the requirements. The price has become inactive and the bands have moved tight together. Entry orders will be placed at the “Straddle” lines: Long order at the top “Straddle” line and the stop loss order at the lower “Straddle” line. Short order at the bottom “Straddle” line, and the stop loss order at the higher “Straddle” line A take limit profit order x3 of the risk When placed correctly, the “Straddle” technique is a powerful tool in your trading armoury and has a high probability of catching good risk to reward trades. Happy Trading David Curran -------------------------------------------------------------------------------------------------- Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. ClickBank is a registered trademark of Keynetics Inc., a Delaware corporation. ForexAvenger.com is not affiliated with Keynetics Inc. in any way, nor does Keynetics Inc. sponsor or approve any ForexAvenger.com products. Keynetics Inc. expresses no opinion as to the correctness of any of the statements made by ForexAvenger.com in the materials on this Web page.