Lets continue using the above stated numbers for our example. You place two entry orders, one to go long at 1.2200 and the other to go short at 1.2150. You DO NOT place any stops, but more importantly YOU MUST NOT PLACE ANY LIMITS (it is ABSOLUTELY CRUCIAL that you don't use any limit orders as this can bum you bad. This is because if your first trade were to exit for profit by a limit order, then the market reverses, picks up your second trade, then reverses again before it hits your other limit order you can then have unlimited loss potential since you don't have a stop or the other trade to cancel this one. Obviously this would be bad if this rarer scenario would happen while you re sleeping or away from your computer for a long time).
Lets say that the price moves up (or down), your entry order gets triggered into a trade, and it continues trending in that direction profitably. Obviously this is a good scenario. At this point you would place a protective stop loss order to ensure that you've lock in some profit, letting your trade continue hoping that it continues to run for more profit (appropriately trailing your stop). You would ALSO cancel the other entry order that hasn't been triggered (very important).
" What about if the trade goes bad? Shouldn't I have a protective stop loss to prevent unlimited risk?" It is not necessary! If the market were to move sufficiently to trigger you into a trade then turn around to the other side of the channel picking up the second trade then you have nothing to worry about. When you have two active trades in the same currency pair each going in opposite directions (one long the other short) then they cancel each other out. Essentially the second trade IS a stop for the first. At this point no matter what happens it won’t cause you to loose any more money (except overnight interest if you leave it open through 5pm EST). Most brokers simply treat a trade (of equal lots for the same currency pair) going in opposite directions as simply a stop that cancels both trades out. Go ahead and try it in a demo account by entering a trade in one direction (since this is not for real money go ahead and make an arbitrary random trade since it doesn't matter if the result is for a profit or loss) then place an equal trade in the opposite direction. For most brokers doing this will result in both trades being canceled, leaving you with a net gain or loss.
Though I don't know of any broker that does keep both trades alive in this situation there might be some that. do. If your broker does this then simply put stops limit orders on both trades set at the same price about 10 pips away from the current market price and sooner or later the market will move to trigger the stop & limit orders to exit from the trade.
In the above stated example that resulted in a double 50 pip loss, totaling 100 pips lost, the result would have been different. In that example you would have only lost 50 pips rather than 100 because once the second trade is triggered it is "game over", locking in the 50 pip loss, and no matter what happens after that you cant loose any more. Once you are in a double trade you broker should just cancel out both trades, or if you have a weird broker then you might have to use a special technique to exit both trades (which was described above).
This "Netless Straddle" method can be used to straddle various types of "opportunities". Generally speaking, whenever you encounter times that the market can move in either direction, and at times you are somewhat uncertain about which direction the market might move then you may use this technique. It can be utilized in any time frame, like trading the day high/low breakouts, consolidation breakouts on your hourly charts, or for those ambiguous "Bi-Directional-In-Wave" you might encounter Surfing or Scalping.
Advantages
The advantage of using this method of straddling is that you can place a trade and leave (no baby sitting required) that is open ended for unlimited profits with only a fixed risk (your risk is only the distance between your two entry orders). Furthermore, your ultimate risk is only half of the ultimate risk of a standard straddle, thus you may engage in a full trade (based on your equity
management risk levels) for each trade. For example, if you can normally risk 2% then with a regular straddle you should place each entry order risking only 1% each (both totaling 2%), but with this technique each trade can be for sufficient lots that would amount to 2%, thus your potential wins can be twice as big.
Disadvantages
The disadvantage is that if you experience a fake-out (bull bear trap) then the market reverses and keeps going through the other breakout price then you might lose the opportunity to be in that successful trade.
Do the "Advantages" outweigh the "Disadvantages"? I think so, but I’ll leave the decision up to you. You'll find situations when doing this works, and situation when this doesn't work for you. Ultimately you are cutting your loss in half, or doubling your potential gains, which in my opinion leaves you with a net advantage overall (as not all breakouts result in bull/bear traps).
The bottom line is that I'm not suggesting that you exclusively adopt this method of straddling and divorce the standard straddle technique. I’ve simply presented you with an alternative method to add to your trading toolbox. There are some circumstances when you'll prefer the "Netless Straddle", and other times that you'll prefer to go with the standard straddle. There are a few opportunities in this "Sailing" eBook when the Netless Straddle is specifically appropriate, such as a variation of the "Forex Roulette" trading the high/low breakouts of day candles.
Source: Forex Sailing
