Thursday, August 13, 2015

A Low Risk, High-Reward Twist on the DAX "Strudel" Strategy with Nadex


Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. I call it the "Strudel" strategy, because it's a delicious breakfast trade. This strategy was based on the observation from Tom Busby, a veteran Futures trader who observed that the 7am EDT hourly candlestick of the Germany 30 (DAX) Index is a pivot point that determines the direction of that market for the following hour a great majority of the time.

The rules for the strategy are remarkably simple:

  • Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
  • Once you are 100% convinced that the 7am EDT hourly candlestick will be  BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
  • Once you are 100% convinced that the 7am EDT hourly candlestick will BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of hourly candlestick.
  • The safest way to execute this strategy is to wait for the 7am hourly candlestick to completely close before you make a decision to BUY or SELL. Markets can get whippy, and one of the most common mistakes made with this strategy is to pull the trigger too early on the trade. Patience is key.


This strategy has been remarkably consistent. Over the past 60+ trading days, this pattern has repeated itself about 90 percent of the time. Just be patient and watch the 7am hourly candlestick develop. Once it's confirmed bullish, then buy. If it's confirmed bearish, then sell. Again, if you want to be "super-safe", don't make a trading decision until 8am, after the 7am hourly candlestick has closed.
Sometimes the 7am hourly candlestick develops very bullish or bearish in a hurry. When that happens, it may be very difficult to get a trade that satisfies your risk/reward criteria. Today was an example of such a trade.


5 Minute Nadex Chart on the Germany 30 (DAX) Index. Click on Chart to Enlarge.

Looking at the chart above, the market had been on an extended downtrend, opening at 11422 at 7:00am EDT. The market ground it's way upward for the first 15 minutes. Then it reversed and started to dive. The 7am hourly candlestick closed at 11405 - BEARISH.

Under the trading rules of this strategy, that would trigger a SELL from 11429, the first Nadex strike price ABOVE the 7am hourly candlestick. But at 8:00am the market was 25 ticks away from the strike price and continuing to move South. To get an order filled, it would have required me to risk $85-$90 per contract. A little bit too expensive for me.  The MACD was starting to cross over from bullish to bearish, and I felt the downtrend would continue, so I placed two orders: 




The first order was a working order that satisfied the rules of the trade. I sold from the first strike price ABOVE the 7am hourly closed candle, which was 11429. The market looked like it was going to be on a continuation down trend, so I placed another live order to SELL at 11369. For this order to settle in-the-money (ITM) for full profit, the market would need to drop another 36 ticks.

The beauty of out-of-the-money (OTM) trades is that your capital risked is far less than your potential reward. But OTM trades also become valuable when the market starts to move toward your strike price. I had a $30 profit target per contract with my pending order. I also decided on a $30 profit target for my live order.

It looked like the market wasn't going to cooperate with my OTM trade, but I only had $8 risked. Then at 8:55, just 5 minutes before the trade was due to expire, the market dove. My trade was now worth $31 in profit, so I took profit and closed out the trade. Mission accomplished. I hit my profit target.

The market expired below 11369. If I had decided not to exit the trade, I could have picked up $92 instead of $31.  But that wasn't a certainty. As sharply as the market dropped, it could have easily retraced and settled above 11369 at the 9:00am expiration.


The first trade never filled, so there was no trade on my SELL at 11429 with a $30 profit target. Instead I managed to pick up the $30 profit risking only $8 instead of $70.  It was a slightly different twist on my normal strategy, but yielded the same results.


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Video: Breakfast, Lunch & Dinner Trades with Nadex
By Cam White, TradingPub







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.

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