Nadex Trade of the Day - An Exception to the 7am-9am Germany 30 (DAX) Trading Strategy.

Today was a day where the Nadex Germany 30 (DAX) strategy normally behaves beautifully, No high impact economic news to shock the markets, just smooth sailing. This strategy has very simple rules, but sometimes rules have exceptions. And today the exception to the rule came in to play.

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. This strategy was based on the observation from a veteran trader who remarked that the 7am EST hourly candlestick of the Germany 30 (DAX) Index is a pivot point that determines the direction of that market for the next hour or so.

The rules for the strategy are remarkably simple:

• Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
• If the 7am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
• If the 7am EST hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of hourly candlestick.

This is a very simple strategy that is remarkably consistent. Just be patient and watch the 7am hourly candlestick develop. Once it's confirmed bullish, then buy. If it's confirmed bearish, then sell. If you want to be "super-safe", don't make a trading decision until 8am, after the 7am hourly candlestick has closed.

Click on Chart to Enlarge

7:00am - The market was on a downtrend going into the 7am-9am time frame. The 7am hourly candlestick of the Germany 30 (DAX) market opened at 10664.967, and started grinding upward be fore retracing in the back half of the hour. The 7am hourly candlestick closed bullish at 10831.833.

The following pending orders were placed once the 7am hourly candlestick was confirmed bullish.

1. BUY at >10656 (1 contract): Risk $50, Reward $50
2. BUY at >10636 (2 contracts) Risk $75, Reward $25

At 8:25, both orders filled. Now it was time for the market to retrace and move back upwards. It breached the 10656 level and the 10636 levels, threatening a double-loss before it finally climbed within the last 10 minutes of the trade. The first order lost $50, and the second order gained $50 for a $4.70 loss after exchange fees were deducted. Pretty much a slick.

For 2 consecutive days, this strategy failed if it was was followed exactly according to the rules in the beginning of this post. On Friday, the 8:30 US monthly Jobs reports narrowly lost the trade. But today it was an exception to the rule that required a closer look at the hourly charts:

Click on Chart to Enlarge

On the hourly chart, the 2nd candlestick at 3am was a huge bearish candlestick. Notice how the market always comes back to the T-Line (8EMA). At 6am, the market gapped down, and the 7am candlestick merely returned back to the T-Line. At 8am, the market continued on its downward path taking out the 10656 BUY order, but falling short of breaching the 10636 BUY order at expiration.

In hindsight, here's how I would have traded today differently

1. Knowing there was a possibility that the regular rules of this strategy would be trumped by the hourly downtrend, I would not have made the BUY order at 10656.
2. Instead, I would have placed a BUY order at 10636, risking $50 to make $50, and a back up BUY order at 10616, risking $80 to make $20 (x 3 Contracts)

If you strictly followed the rules of the 7am-9am Germany 30 (DAX) strategy, and BOUGHT the market at the first strike price BELOW the 7am opening price, then your trade would have been a loser. Be very careful trading into strong hourly downtrends.

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The Purpose of this Blog

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.

Disclaimer

The opinions expressed in this blog are solely those of the author, and should not be construed as trading advice. I am not a registered or certified financial planner. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. All individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.