News straddling involves taking a hedged position in anticipation of a significant data or major news event. Here's how news straddling works:
Opening Buy and Sell Positions: A trader may hold both a buy and a sell position, with strategically placed stop losses. This setup ensures that if one position incurs a loss, the other position wins a greater amount.
Pending Order Straddling: Alternatively, a trader might set stop or limit orders on either side of the current market price before a news event. This tactic aims to capture price movements in either direction once the event impacts the market.
Why is news straddling prohibited?
High Risk of Loss: News straddling carries a significant risk due to the volatile and fast-moving market conditions surrounding news events.
Stop Loss Limitations: In rapidly changing markets, stop losses aren't guaranteed to execute at the intended price. This could lead to larger-than-expected losses, undermining the effectiveness of a hedging strategy.
Due to these high risks, news straddling is prohibited to protect traders from potentially severe financial losses associated with unpredictable market fluctuations. It's advisable to explore alternative strategies that adhere to risk management principles and align with trading guidelines.
