Saturday, July 1, 2017

The Germany 30 "Strudel" Strategy Revisited

After a few years blogging exclusively for Nadex, it's time to dust off my personal trading blog.

For starters, I'm going to re-visit a strategy that I first discovered in June of 2014.

I was editing a project from Tom Busby, founder of DTI, and he made an interesting observation about the Germany 30 (DAX) index:

Busby observed the following:

"The 7am EDT hourly candle of the DAX usually controls the direction of the following hourly candlestick(s)."

That's just about as binary an observation as it gets. Here's a chart from last week that illustrates what I'm talking about:


















Click on Chart to Enlarge

The red arrows highlight 7am hourly candles. Notice what happens to the 8am candle more often than not.

I traded this strategy with binary options for a couple of years and it caught on, most of the time. My rules were 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.
But here was the problem:

The strategy worked too well. In time, nobody wanted to take the opposite side of that binary trade. Binary trades that used to pay $50 rewards started having a max profit of $25 or less. So I got tired of risking too much for little in return.

Trading this Strategy with Nadex Spreads

Using the rules above, I enter a BUY or SELL ATM Nadex Spread at 8am based on how the 7am hourly candlestick closed:


















Click on Chart to Enlarge

In this example, the 7am hourly candle closed slightly bearish triggering a SELL. At 8:01am an ATM Spread was taken. I closed out the trade after a 24 tick gain, or $24 per contract traded.

What I Like About this Strategy

From my observation, this strategy is good for capturing ticks in a relatively short period of time. If the market moves against me, it is rarely a large reversal, but it is also easy to get out of the trade.

When I Decide NOT to Take the Trade
  • If the 7am Hourly Candle is a Doji
  • If there is a MAJOR economic news event at 8:30
  • If the 7am Hourly candle is AGAINST a major uptrend or downtrend

 Here's an example

























The 7am hourly candlestick is bullish against a steep downtrend. Simply a pullback. If I was a buyer in this example, then I'm trading against a strong prevailing trend. 


The Purpose of this Blog


The Inquisitive Trader will be used  to share my experiences as an investor getting back into trading the markets. Currently, I am the Content Manager for Sir isaac Publishing, and I publish articles in well over a dozen websites, as well as working on eBooks and other projects.

Every 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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