A straddle trade is when you set up two pending orders for the same currency pair. One order would be a buy stop and the other order would be a sell stop. The reason for doing this type of trade would be that you want to capture a potential big move in the pair but you don’t know which way the pair is going to move.
This trade could be after the pair has gone through a period of consolidation and you expect that the pair is going to break out of the narrow range it has been trading in. A more common reason would be to enter a straddle trade before a major economic news event is going to take place. The economic news could be an interest rate decision from any country that you are looking to trade or a report on the Gross Domestic Product, or Consumer Price Index.
Many forex brokers will provide an economic calendar on their site to notify traders of the upcoming announcements. They will also provide a rating on the expected impact that the announcement will have. Look for events with high volatility expected or high impact events.
Before the announcement, look at the price range the currency pair is trading in. The high point of the range would be where you set your buy stop order. The low point of the range would be where you set your sell stop order. Obviously, you may tailor the orders to be a little higher or lower than the high or low point of the range.
After the news event is announced, a potential big move, up or down, can occur. Your pending orders are now set for an entry into the trade once the pair breaks out of the identified range. If the pair breaks higher, your buy stop is triggered. However, if the news causes a break lower, your sell stop is triggered. Either way, you can take advantage of the potential big move caused by the announcement.
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