Nadex Trade of the Day - GBP/USD "London Breakout" Strategy (Feb. 5, 2015)

Under "normal" circumstances, the GBP/USD "London Breakout" strategy is a highly consistent, effective strategy. Over the past few weeks the strategy has been less consistent. With the US Dollar Index peaking at 12-year highs and GBP/USD sitting on 10-year lows, there is a standoff that needs to be resolved. 

Over the past couple of days, the US Dollar Index has pulled back from near 96 to 94. With a little bit of slack given back to the market, the "London Breakout" strategy behaved "normally" today.

The rules for this strategy are very simple:

• Select the Daily (3PM) Nadex binary option expiration.
• The low or high of the daily session will reveal itself between 2am and 5am EST, usually after the open of the London financial markets at 3am.
• The opposite high or low will appear between 8am-2pm after the opening of the New York financial markets.
• If the LOW of the day is identified between 2am-5am, then BUY at the lowest strike price that satisfies your risk/reward criteria.
• If the HIGH of the day is identified between 2am-5am, then SELL from the highest strike price that satisfies your risk/reward criteria.
• If you can't determine the high or low of the market, or if it chops sideways, then don't trade this strategy.

The "London Breakout" strategy usually works very well on the release of economic from the UK. These reports are usually released at 4:30am EST, and they normally have a dramatic impact on the market. If the news is bearish, the market can spike down 40 pips or more within a matter of minutes. If the news is bullish, the market can spike upwards dramatically. Today, economic news reports were released from the UK at 3:00am EST (housing) and 7:00am EST (interest rate decision).

Click on Chart to Enlarge

At 2:00am EST the GBP/USD opened at 1.5192 began rising sharply. After the 3:00am bullish housing report was digested, the market spiked up even more aggressively. At 5:00am the GBP/USD opened at 1.5240, a 48 pip increase over the 2:00am opening. The daily trend is strongly bullish. The following order was placed at 5:20am EST:

Trade Details: 
Contract: GBP/USD >1.5200 (3PM) 
Expiration: Thu Feb 05 15:00:00 EST 2015 
Direction: BUY 
Quantity: 5 
Price: 70.00

5 contracts were purchased near the 2:00am opening price at 1.5200 with a 3:00pm EST expiration. Since this order was already deep into the money, the market order had a maximum risk of $350 and a maximum profit of $150.

At 7:00am the UK Interest rate decision came in unchanged, and the market continued climbing aggressively. At 8:30 the market value of the 5 contracts was $130, and the decision was made to exit early and take profit. Most of the maximum profit was taken leaving just $20 on the table. With the recent volatility in the markets, it was a prudent decision to cash out with almost a full profit.

Today would have also been a good day to BUY a Nadex Spread on the GBP/USD. This currency pair traveled over 100 pips in just over 6 hours.

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The Inquisitive Trader will be used  to share my experiences as an investor getting back into trading the markets. In June 2014 I joined the staff at TradingPub, and I am responsible for helping to book speakers for free webinars. Each week, I am exposed to a wealth of information from leading industry experts who teach how to trade the financial markets. When I come across interesting trading strategies, I will summarize my thoughts and share a link to the archived webinar. As I develop my own trading plan, I will also share some of my personal successes and failures. Responsible comments are welcome, but to avoid flaming posts and spam, I will be moderating all comments. I hope you find this blog useful, and wish you the very best on your journey trading the markets.

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