A Nadex After Breakfast Trade with the FTSE 100

Pour some tea and enjoy a scone. Here's a trade that may have some promise on the FTSE 100 Index. The FTSE100 is an index of the top 100 companies traded on the London Exchange.

Yesterday, I was browsing through the Nadex trading platform, and I decided to take a look at some markets that I rarely trade. I pulled up the FTSE 100 index, and started to look at the historical performance of that index on multiple time frames to see if any patterns emerged.

When I switched to the hourly charts, something jumped out at me. It appeared that the 9am EDT hourly candlestick controlled the 10am EDT hourly candlestick with a high degree of frequency. 

Here's what I saw:

Click on Nadex Chart to Enlarge

Notice the 9am hourly candlesticks above. Can you see that the following 10am candlestick never challenges the opening price of the 9am candlestick? In fact, the 10am candlestick tends to continue in the same direction that was established by the 9am candlestick. I back-tested the hourly charts on Nadex for 20 trading days, and the same pattern repeated itself for 16 out of 20 days. Over the past 2 weeks this pattern repeated itself 80 percent of the time. 

The same phenomenon occurs with the 7am-9am German "Strudel" strategy that I have written about extensively. Complete rules for the "Strudel" strategy are included in the free eBook from TradingPub, entitled "Trading Made Simple: Strategies that Risk $100 or Less".

The rules for this new strategy are very simple to execute:

• Select the 9am-11am EST Nadex time period for the FTSE 100 Index.
• If the 9am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of the 9am hourly candlestick.
• If the 9am EST hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of the 9am hourly candlestick.

This is a very simple strategy that looks like it can be fairly consistent. Just be patient and watch the 9am 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 10am, after the 9am hourly candlestick has closed.

Since this is the first time I have traded on this observation, I elected to trade in demo, and here is how the traded played out:

Click on chart to enlarge

9:00am - The 9am hourly candlestick opened at 6791.000, and briefly went down before driving back upward. The 9am hourly candlestick closed BULLISH at 6800.433. This triggered a BUY at 6789, the first strike price BELOW the 9am hourly opening price.  At 9:45 I was convinced the hourly candlestick would close bullish, and I placed the following trade in my demo account:

When I back-tested this strategy, it had an 80% probability of being successful, so I wasn't overly concerned with risking a maximum of $70 per contract.


10:00am - The 9am hourly candlestick closed BULLISH at 6800.433.  Today the market kept grinding upward before ultimately expiring at 6805.133. Very little stress in this trade.

Trade Results:

Win: BUY at >6789 - 5 contracts x $30 profit,  less $9.00 in exchange fees = $141.00


Conclusion:

This is a new trading observation, and it needs further back-testing. I have only looked at 20 trading days, but need to go back further to see if this pattern holds up to the test of time.

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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.