The Inquisitive Trader: 2014

Wednesday, December 24, 2014

Managing Your Money with Nadex Binary Options

If you trade Nadex binary options, then you know exactly what your maximum risk and maximum reward is before you place your trade. You know that a trade can't run away from you and that you can't get "stopped-out" by market spikes as long as your trade is active.

When you trade with Nadex or any other financial instrument, you must balance money management, risk/reward, a proven trading strategy, and the right trading mindset in order to achieve consistency. In this blog post, a simple plan for money management will be discussed.

The 5 Percent (or less) Rule

Many new traders get excited about the possibilities of Nadex, but don't know how to properly fund their trading account. Here's a simple rule: Never risk more than 5 percent of your account balance at any given time. If you are entering a trade risking $50 to make $50, then your account balance should be $1,000 since $50 is 5 percent of that balance. If you routinely risk $80 to make $20 on much higher probability trades, then a $1,600 account balance is preferable. Here is why the 5 Percent Rule can be helpful for managing your Nadex trading account:

Risking 5 percent (or less) of your account balance on a high probability trade will greatly improve your trading psychology. If you have 5 percent (or less) of your small trading account at risk, you can trade with better confidence. You have discovered and personally tested a strategy with better than a 70% probability of success. You know it's likely that 7 out of 10 of your trades will be successful. If you risk less than 5 percent of your account balance on a high probability trade, then you are in control of your emotions.
Risking more than 5 percent of your account balance can negatively affect your trading psychology. If you have a $400 account balance and you place a trade risking $80 to make $20, then you have 20 percent of your account balance at risk for a 5 percent return. Even though it's a high probability trade, there is still a 20 percent chance that the trade will expire out of the money. So you hunch forward, babysit the trade and you are quick to exit if the trade looks like it's turning against you. You feel emotionally drained even if your trade expires in the money. If you placed the same trade with a $1,600 account balance, it's likely that you would be in a relaxed mindset making the trade.
If you don't have the funds to meet the 5 percent rule, then practice in demo and make gradual deposits into your account until it is adequately funded. The first couple of months trading Nadex should be heavily devoted to research and education. If you have just funded your Nadex account with $100, it might be a good idea to invest in self-education and test a high probability strategy in demo at least 40 times. For a checklist on how to do this, click here. In the meantime, if you have decided that your strategy requires $50 risk per trade, then you may want to raise another $900 before you start trading live. If your chosen strategy requires an $80 per contract risk, then try to raise more money.

Trading is an emotional business. and money management is critical to trading consistency. Even the best trading strategies will lose from time to time, and disciplined traders know how to accept losses. They know that their trading strategy is solid and their winning trades will far outweigh their losers. They never expose their accounts to unnecessary risks, and they can easily weather short-term setbacks. And the key elements to trading that they share in common are:

They have learned how to manage money on every trade
They have a proven high probability trading strategy that they can do in their sleep
They know how to manage risk/reward vs. probability of success
Their accounts are adequately funded to deploy their strategy

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.

Sunday, December 21, 2014

How to Grow Your Nadex Account Using High-Probability Strategies

You have just funded your Nadex account after practicing in your demo account. You know how to trade with Nadex and you are ready to get started. What's the next step?

The first thing is to find a high-probability Nadex trading strategy that fits your personality and trading style. You have found a strategy and you have tested it in demo mode until you are completely comfortable with the results. In our last blog post, we discussed how to identify the right Nadex trading strategy for your trading personality. More importantly, we also discussed how to test the strategy and how to measure your results.

How to double your Nadex account balance in less than 2 months without losing sleep:

For the purposes of this discussion, let's assume that you have managed to fund your Nadex account with a $1,000 opening account balance. You can fund it for as little as $100, but $500 or $1,000 gives you a little more of a cushion to work with. Please understand that this is risk capital. This is not money that you need to pay your rent or mortgage, pay your bills or to put food on the table. Risk capital is money you find under your mattress, or sitting in a stale savings account, or perhaps raised from selling unwanted stuff in a garage sale. It is money that you do not need to put your hands on any time soon. You can also survive just fine if you lost it all. With that understanding, take your trading seriously and start growing your Nadex account.

Here's a checklist for growing your account:

Never put more than 5% of your account balance at risk at any given time. That's why a $1,000 opening balance was suggested. $50 is just 5 percent of a $1,000 opening balance. If you trade a high probability strategy (70-80 percent probability) while risking $50 to make $50, there is a very high probability that your account balance will start growing steadily. If you fund your Nadex trading account with a smaller account balance, like $500 you will be putting a greater percentage of your account at risk, but you want to grow it to a place where you can risk 5 percent or less.
Set a realistic daily profit goal. Stop trading once you achieve it. Let's say your daily trading goal is also 5% or $50. Then in one successful trade, risking $50 to make $50, you are done trading for the day. It may take 2-3 trades to reach $50 if you exit trades early or trade a contract with a smaller payout. Once you reach your daily profit target, get out of the market. Don't go back into the jungle looking for more profit opportunities. That's over-trading, and it can come back to bite you. Celebrate your victory and practice in demo. You are new at trading with Nadex. Refine your craft in demo if you still feel the need to trade.
Track your performance. Set up a profit plan. You need a scorecard. There is an average of 22 trading days in every month. Divide your monthly trading results into two, 10-day profit plans. Here's an example, using the 7am EST DAX Strategy for Nadex. This is one 10-day period, yielding a $300 profit. If that carries forward over the next three 10-day trading periods, you have a $1,200 profit - more than double your opening balance in less than 2 months. On each day, just one trade was made, and no more than 5 percent of the original account balance was exposed to risk.

You're going to lose every once in a while. Don't "revenge trade". In the profit plan above, the first 8 days were profitable, the last 2 days lost. If you have tested a strategy extensively (40 times) in demo, you should not let occasional losses bother you. Just let them happen. Revenge trading is a very easy way to bleed out an account.
Trading with this mindset will keep you from panicking. If you have a high probability trading strategy, and you risk less than 5 percent of your account, you can breathe easier when you trade. You confidently tally your winners and you don't stress when losses happen. Trading is an emotional business. If you trade more than 10 percent of your account balance on any trade, you will feel your blood pressure raise and you will probably panic if the market turns against you.

Conclusion

Trading consistency depends on having a high-probability trading strategy, combined with disciplined money management and a risk/reward strategy in your favor. You also need to trade with a clear mind. When you reduce your risk exposure to the market, it's easier to make level-headed trading decisions.

The Purpose of this Blog

Disclaimer

Saturday, December 20, 2014

How to Determine if a Nadex Trading Strategy is Right for You

If you are new to trading Nadex, there are several reasons why you probably opened your account. Maybe it's because you don't need a large amount of capital to get started. Perhaps it's because you like the idea of having a predefined maximum risk and reward. Maybe you like the fact that you can't get stopped-out in a trade within the defined time-frame of the trade. Or it could be a combination of all of these factors.

Once your account has been funded, the next step is to identify a trading strategy that provides consistency. You are looking for a strategy you fully understand that also matches your trading personality and your risk/reward tolerance.

As you research Nadex trading strategies, you will discover multiple trading strategies that all promise consistent results. But which strategy is the right strategy to follow? What kind of trader are you? Do you like to follow trends? Which markets are you most comfortable trading - indices, commodities, currency pairs? Every trader has a different trading personality, and it's likely that you will find a strategy best suited for your trading style, risk/reward tolerance and your trading mindset. Once you've identified your strategy, it's time to prove beyond the shadow of a doubt that you are trading the right strategy. And that's what testing is all about.

It Takes 40 Trades in Demo Mode to Prove if a Strategy is Right for You

That's right - 40 trades in demo. Why so many demo trades before you go live? There are several reasons for doing this:

40 demo trades makes a trading strategy (or theory) statistically significant.
You will achieve competency in trading the strategy. You will know the rules of the strategy, and you know exactly what to do.
You will have a detailed, documented record of successful and unsuccessful trades. You will know the probability of success, and what your expected profit and loss statement can be in the future.
Your strategy will have weathered 40 trading days, and will have been exposed to a wide variety of market conditions.
You will see first hand how your trading rules hold up over 40 trades. Are minor course-corrections needed to ensure better results?
You will have proof of the probabilities of success, and you will be able to gauge if it fits your risk/reward profile and money management plan.
You will be able to execute the trading strategy in your sleep. It will be reflexive.
If the strategy isn't yielding profitable results, do the rules need to be tweaked, or is the plan just not right for you?
You P&L statement on the strategy will be your scorecard.

Executing 40 trades in demo requires great patience, but you need to remind yourself that trading is an ultra-marathon and not a sprint. If you exercise the discipline and patience to thoroughly test a trading strategy before you go live, you will probably be consistently rewarded for your efforts.

Checklist for Setting up your 40-Day Test

Make sure you have the rules of your trading strategy clearly written down
To measure your results accurately, do exactly the same thing every day. Don't deviate from your rules. If you trade a strategy different ways every day, you won't have reliable information to support your trading strategy.
Keep a log of all of your trades. Record everything about the trade, including your state of mind, and the market conditions that day. Break your 40 day test into four 10-day profit plans. Here's an example (click on image to enlarge):

At the end of the 40 day test period, you will know whether your trading strategy is right for you or not. You will know exactly how to execute the strategy, and you will know how to do it in your sleep.

Here's an Example of a Strategy that was Tested for 40 Days

The 7am DAX Strategy started as an observation, moved on to a theory, and ultimately got tested for 40 straight days before going live. In this YouTube video, a couple of strategies are covered. But if you want to get straight to the 7am DAX strategy, just scroll to the 28:00 minute mark:

Conclusion

Regardless of how good you think a theory is, you should test it extensively in demo before you start trading your own hard-earned money. You don't need many trading strategies to ensure consistency, and your account balance will thank you if you can consistently trade strategies where your probability of success comfortably exceeds the amount of capital risked.

The Purpose of this Blog

Disclaimer

Friday, December 19, 2014

Trading the Germany 30 [DAX] Futures Market with Nadex Binary Options

Trading the Germany 30 Index (DAX) futures with Nadex binary options can help build trading consistency. A veteran trading educator once observed that the 7:00 am EST hourly candlestick of the German DAX market is a pivotal point that influences the following hour of trading. If you take a look at the hourly charts of the DAX, you will notice that this observation is correct almost 80 percent of the time.

This observation led to the development and testing of a strategy for trading the Germany 30 (DAX) market in Nadex using their 7am-9am trading time frame. The rules are very simple to follow, and it doesn't require extensive training to master this strategy.

Rules for Trading the 7:00 am EST DAX Strategy with Nadex Binary Options

Make sure you are at your computer at least 15 minutes before the opening of the 7:00 am EST hourly candlestick.
Take a look at the daily, hourly, 30-minute and smaller time frames for the DAX. Is the market in an uptrend, downtrend, or is it chopping sideways?
What do your favorite indicators tell you about the direction of the market?
Take a look at the economic calendar. Is there any overnight economic news driving the direction of the DAX? Are there any economic or earnings reports due to be released before 9:00 am EST? Trading into economic news reports can be very risky.
Refresh your Nadex screen at 7:00 am EST and select the 7am-9am trading period.
Record the opening price of the 7:00 am hourly bar. Also record the first Nadex strike price available above and below the opening price.
Watch the hourly candlestick develop. This can take patience, but you are looking for confirmation of a bullish or bearish hourly candlestick. In some cases, it can take almost an hour for confirmation.
If the hourly candlestick is bullish, then BUY from the first strike price BELOW the 7am opening price.
If the hourly candlestick is bearish, then SELL from the first strike price ABOVE the 7am opening price.
You can place a market order, yielding a lesser profit and greater risk, or you can amend your order, risking $50 for a 1:1 risk reward ratio. Your order will be a working order until the market retraces to fill your order.
That's all there is to it. If your order fills, then you just wait until the contract expires at 9:00 am. If your positions are threatened, you can always exit early and preserve some profits or minimize losses.

The 7:00 am EST DAX Strategy for December 19, 2014 (Click Chart to Enlarge)

At 7:00 am, the Germany 30 (DAX) futures market opened at 9797.467. The first Nadex strike price below the opening price was 9780. The first strike price above the opening price was 9800. Within 20 minutes, the direction of the hourly candlestick was noticeably bearish. Two pending orders were placed:

1. SELL 1 Contract >9800 Maximum Risk $50. Maximum Reward $50
2. SELL 5 Contracts >9820 Maximum Risk: $400 Maximum Reward $100

The second order is only advisable for account balances of over $4,000 or so, since there is greater capital at risk. That order was placed as protection for the first order. Since this order was very deep in the money, the probabilities are very low that the market will reverse all the way up to that strike price, but there is also greater capital at risk.

At 7:30, both of the pending orders filled, then the market moved sharply downward, retraced briefly, and then went into a nose-dive. The market closed at 9751.267 for a full profit in the money for both orders at the 9:00am expiration time. When the contracts settled, here were the results:

$150.00 - Profit from settling account in-the-money at 9am expiration.
$10.80 - Round trip exchange fees for all contracts traded
$139.20 - Net profit

Conclusion

Trading the 7:00 am EST DAX strategy with Nadex binary options can result in better trading consistency. It is advisable to test this strategy in your Nadex demo account to make sure you are comfortable with the strategy before trading this strategy in your live account. A more detailed description of this strategy can be found in the Nadex section of the free ebook "When Markets Attack - Lessons from 15 Traders Who Beat the Markets".

The Purpose of this Blog

Disclaimer

Sunday, December 14, 2014

Applying the 4 Stages of Learning to Trading Nadex Binary Options

Learning any new skill requires a receptive mind, education & training, practice and consistent application before mastery is achieved. In the 1970s, Gordon Training International introduced “The Four Stages for Learning Any New Skill”. While this model works extremely well for learning any new skill, whether it’s cooking or automotive repair, it works equally well for mastering Nadex.

Stage 1: Unconscious Incompetence – “You don’t know what you don’t know”

You just saw an ad on Bloomberg TV or an article about Nadex, and you've never heard of it before. Maybe you have a friend who is trading successfully on the Nadex platform, and let you know about it. You have a brief internal debate if trading Nadex is useful or not for you. After a little bit of research, you understand that Nadex deals with simple “yes or no” propositions. Will gold futures settle above or below 1190.0 when the markets close at 1:30pm EST? How does Nadex really work? After a little more research, you download a free 2-week demo of Nadex and decide to see what it’s all about. You are now ready to move on to the next stage of learning.

Here’s an example: You have learned that you can’t get “stopped-out” as long as trade is active in Nadex. You have also learned that your risk and reward are capped, so a trade can never run away from you. You’re intrigued and you look at today’s volatile, choppy markets:

Let's take a look at the hourly chart for the DAX futures market on Thursday, December 4, 2014. A veteran trading educator once observed that the 7:00am EST hourly candlestick is a pivotal point in that market most of the time, and usually sets the tone for the next hour or so. If you follow this strategy, you would watch the 7am hourly bar and confirm that it was bearish. Then you would sell the market, set your stop/loss and take profit targets.

Everything was going according to plan until 8:30, when news from the ECB Press Conference was released, along with remarks from FOMC member Mester and a slightly bearish Continuing Jobless Claims report. The Dax futures market shot straight up like a rocket, stopping out anyone holding a short position. Then it hesitated for a second and went into a nose-dive, taking out anyone still in the market with a long position. Within 5 minutes the DAX futures market traveled between a high of 10095 and a low of 9874 for a 221 point swing. Very few people in the market at that time survived unless they had incredible dexterity. The obvious lesson in this example is that it can be extremely dangerous trading in to news events.

You learn that if you made the same trade in Nadex, using the 7am-9am EST trading period, your trade would have been protected from the 8:30am market spike that took out a great number of futures traders. Remember, you can't get stopped-out trading Nadex before a defined expiration period. The trade would have settled safely in the money at 9:00am. In this example, your trade would have also been protected from a runaway market because there is a defined profit and loss, and you know exactly what your maximum risk is before you trade.

Stage 2: Conscious Incompetence – “You now know about something previously unknown to you”

You are exploring your Nadex demo account, and you starting to make some trades. Although the platform is easy to use, you quickly see a few successful trades, and you also make a few mistakes. You realize that in order to trade consistently, you need to learn some high-probability trading strategies, combined with an understanding of risk-to-reward and disciplined money management. You analyze your losing trades, and discover where mistakes were made. You also discover patterns behind successful trades. After doing some further research, you sit in on a few webinars and identify some strategies from experienced Nadex traders with a documented history of success. Armed with a couple of strategies, you decide to fund a live Nadex account with as little as $100, and you are ready for the next stage of learning.

Stage 3: Conscious Competence – “You know what to do, but practice makes perfect”

Armed with a few high-probability strategies you discovered, you are now practicing with them daily in demo mode, and implementing them with your live account if the optimum setup presents itself. You are checking the economic calendars, studying the markets you follow, and applying technical analysis to make an educated decision about those markets. You are developing patience, and looking for the right setups to reveal themselves. You keep a log of every trade you make, and you analyze them daily. But all of this takes conscious effort and concentration. After repeated testing of high-probability strategies in your demo account, you start to feel very comfortable with your consistency and your results. And that’s when you move on to the next stage of learning.

In this example, you have developed a set of rules for trading the 7am DAX strategy in Nadex. You watch the 7am EST candlestick develop. Is it developing bullish or bearish? Once the bullish direction is confirmed, you BUY the Germany 30 market (DAX) at the first strike price BELOW the 7am opening candlestick price. The order fills and the market travels safely for a profit at expiration. You’ve tested this strategy over 40 times in demo, and you have learned how to master the deployment of this strategy. You also have meaningful statistics on successes vs. failures with this strategy. You can almost make the trade in your sleep.

Stage 4: Unconscious Competence – “You know what you know, and it’s now habitual”

You have practiced your strategies so much, that they have now become reflexive. You instinctively check the economic calendar, plot your indicators, do your technical analysis and make informed decisions in a split-second. It seems like you don’t even have to think about it. Experience tells you when to pull the trigger on a trade, exercise caution or when not to trade. You have developed a set of trading rules that are ingrained in your personality, and you don’t deviate from your trading plan. Stage 4 is where you want to be, because you can trade with a relaxed and confident mindset. You know that you have the edge, and the probabilities are firmly on your side. You are also disciplined, and have become a master at managing risk/reward and the money you make available for trading. Losses don’t bother you, because you know the probabilities are firmly on your side.

Once you understand where you are in the process of learning of a new skill, then learning becomes fun, and you become a sponge for more information. If you come across a new strategy for trading Nadex binary options or spreads, it is important to recognize that you are back in stage 1 of learning. If it’s a promising strategy, you will drive yourself to get to stage 4, where the new strategy becomes instinctive.

The Purpose of this Blog

Disclaimer

Saturday, December 13, 2014

"When Markets Attack" - Free E-Book with 15 Trading Strategies from the Pros

A Great Way to Plan for 2015 Trading Success!

If you have been thinking about trading stocks, options, futures, Forex or Nadex, this new, free E-Book from TradingPub book delivers 15 easy-to-follow and proven strategies for trading each of these markets.

Whether you have no trading account, a small account ($500 - $1,000) or a larger account ($25,000+) you will find strategies with high probabilities of success geared toward your personality and trading style. You will find strategies for trading new accounts, or inside your IRA or 401k plans. If you've never traded before, but you you want to learn a little more about trading, this is a great book to satisfy your curiosity.

Click Here for your free copy of this book.

Each of the 15 Strategies in this 240-page E-Book is divided into three sections:

The Game Plan - Brief introduction to the trading instrument (stocks, for example), along with a full written example of the trading strategy, complete with illustrations, charts and examples.
The Movie - If you like what you've read, you can click on a one-hour webinar from the original presenter of the strategy. You will get a first-hand account of how this strategy works with more examples of the strategy in play.
The Offer - If you are really excited about a strategy, you can follow the presenter, and subscribe to their services or purchase their products at discounted prices.

When I signed on to work with TradingPub in June 2014, I had not traded the markets in over 10 years. I was immediately immersed in free, top-quality trading education from the best teachers in the industry. My responsibilities included booking presenters for multi-speaker events. As I sat in on each of the webinars, I realized that I was privileged to be absorbing so much information from great educators. So we kicked around the idea of writing a book, and I was assigned to do the writing.

Writing "When Markets Attack" was no small task. We had to flesh out 15 strategies for stocks, futures, options, forex and Nadex. Then I put on my headphones and transcribed the entire webinar, editing the content afterwards to make sure the chapter was written in layman's terminology and had good flow. It took almost three months to complete the project. Afterwards, the creative staff at TradingPub did a great job of proofreading and formatting the content, and produced a first-class E-Book.

Our goal in writing this book was for readers to walk away with at least three trading strategies they can use tomorrow, and the book is loaded with very interesting observations from veteran traders. Here are some examples:

How to control your emotions and become a relaxed, mindful trader.
The British Pound usually establishes its low or high of the day between 2am-5am EDT. The opposite high or low reveals itself between 8am-2pm EDT. This happens the great majority of the time.
The 7am hourly bar in the German DAX market is a pivot point usually sets the direction of the market for the following hour.
How to risk $156 to make $1,000 trading 30-year bond futures.
How to retire on $13,000 per month in 5 years, tax-free

The response to this book has wildly surpassed our expectations, and TradingPub has been flooded with testimonials. Here's one we received recently:

"You HAVE to know this...

Y'all have compiled the MOST USEFUL and CONCISE INFO I have ever seen on trading correctly.

This doc encapsulates ALL that I "look at and do" (successfully these days) and a number of things I had not realized (well, yet, anyway!) Incredible!!!

INTERSTELLAR AWESOME is the only phrase i could use to describe!

Many MANY MANY thanks!

My Kindest Regards!"

Okay, enough already. If you are interested in building extra income or retirement savings, then this book is for you. Enjoy reading it and have a great holiday season!

Cam White

The Purpose of this Blog

Disclaimer

Saturday, December 6, 2014

Protecting Yourself from Market Spikes with Nadex Binary Options

You're a disciplined trader. You have a good trading platform, great strategies and the proper mindset for trading the markets. You've done your research, and your indicators are all in agreement that a perfect setup is in play. You place your trade, set your stop/loss and profit target.

The market moves in your expected direction, and everything is looking good. Then in an instant, the market reverses violently and stops you out for a loss. You don't have time to react. Your first reaction is pure shock, followed by disbelief and maybe anger. Someone was responsible for taking your perfectly good trade out of the market. Then the market reverses and moves in the direction you originally predicted, adding insult to injury.

This happens to traders every day trading stocks, futures, forex and other instruments. We live in a world where high frequency trades can unexpectedly come in to play. Economic news can also trigger violent market spikes.

Let's take a look at the hourly chart for the DAX futures market on Thursday, December 4, 2014. Tom Busby, founder of Diversified Training Institute once observed that the 7:00am EST hourly candlestick is a pivotal point in that market most of the time, and usually sets the tone for the next hour or so. If you follow this strategy, you would watch the 7am hourly bar and confirm that it was bearish. Then you would sell the the market, set your stop/loss and take profit targets.

Everything was going according to plan until 8:30, when news from the ECB Press Conference was released, along with remarks from FOMC member Mester and a slightly bearish Continuing Jobless Claims report. The Dax futures market shot straight up like a rocket, stopping out anyone holding a short position. Then it hesitated for a second and went into a nose-dive, taking out anyone still in the market with a long position. Within 5 minutes the DAX futures market traveled between a high of 10095 and a low of 9874 for a 221 point swing. Very few people in the market at that time survived unless they had incredible dexterity. The obvious lesson in this example is that it can be extremely dangerous trading in to news events.

If you made the same trade with Nadex binary options your trade would have settled safely in the money for a profit at expiration without being stopped-out.

Click on Chart to Enlarge Image

Here's the same trade using the 7am-9am EST Nadex time frame. The 7:00am EST candlestick opened at 10030.60. After confirming that the hourly direction of the DAX futures market was bearish, a trade was placed at 7:47am at the nearest strike price above the 7:00am opening price. Here are the trade details:

Trade Details:
Contract: Germany 30 (Dec) >10046 (9AM)
Expiration: Thu Dec 04 09:00:00 EST 2014
Direction: SELL
Quantity: 5
Price: 30.00

Since this trade deep in the money, 5 contracts were sold, risking a maximum of $350 to make a maximum of $150. When the market spiked upward at 8:30, the trade wasn't threatened, because you can't get stopped-out trading with Nadex before the trade expiration period. After it retraced and moved downward, the trade was completely safe at expiration, yielding a $150 profit, less $9 in exchange fees for a $141 net profit.

If you are looking for a way to trade popular indices, commodities and forex pairs, Nadex provides an easy to use platform that can allow you to trade without fear of getting stopped out within a defined time period.

Disclaimer

Saturday, July 19, 2014

Using Nadex to Make Trades You Can Sleep On

Note: Please make sure to read the Disclaimer at the bottom of this blog

A Simple Strategy for Trading the GBP/USD with Nadex Binary Options
By Cam White, TradingPub

If you are new to trading the markets, or if your schedule doesn’t permit you to trade when the markets open in New York, there is a strategy for trading the GBP/USD currency pair using Nadex binary options that can be very effective. This strategy allows you to quickly make an observation overnight, set an entry point, execute a trade with confidence and go back to sleep.

Every trading day, as the Forex currency markets open, there is a one hour overlap between the opening of the London session and the close of the Tokyo session. It occurs between 3:00 am and 4:00am EDT. It is estimated that over 40 percent of Forex trades are processed through these two trading hubs, so there can be high volume and volatility within that one hour time window. As the London market opens, large volumes of transactions are processed, which often produces a corresponding spike in activity between the Great Britain Pound (GBP) and its related currency pairs, including the GBP/USD. This spike can be bullish or bearish, but it is usually very obvious, has momentum and reveals itself no later than 5am EDT.

One popular trading strategy observes that the high or low of the GBP/USD session will be established between 2:00am-5:00am EDT. The corresponding low or high will occur between 8:00am-2:00pm EDT after the opening of the New York market. If you are confident that the daily high or low of a trading session is setting up at the open of the London trading day, then determining the direction of the market for the rest of the day can be a simple binary "up or down" decision.

Forex Market Hours. All Times are EDT (New York)

This strategy, known to some Forex traders as the “London Open Breakout Strategy”, has been successfully used and backtested for years. Forex traders use this information to find the right entry point, and to set their profit and stop/loss targets. With Nadex binary options, if you see a strong directional move in the GBP/USD with obvious momentum, then you are making a simple “upward or downward” decision about the direction of the market, choosing an entry point, and setting your contract expiration to 3:00PM EDT that day. When you are “right”, each contract settles at $100 at expiration. If you are “wrong”, the contract settles at $0 at expiration. If the trade is working in your favor, but starts to retrace and threaten you, you have the option to settle your contract early to take a partial profit, break even or minimize losses.

Nadex GBP/USD Chart for 7/11/2014

In the example above, the GBP/USD pair chopped sideways when the market opened at 2:00am EDT. At 3:00 am, the London market opened, and started chopping downward before spiking to a daily high at 1.71500 at 4:20am. Then the GBP/USD started to plummet. It looked like the probable high for the day had been established. The next task was to find a trade that had an optimum risk/reward ratio. A contract was available to SELL the GBP/USD pair for $42 per contract, putting $58 per contract at risk. Three contracts were sold, and here were the trade confirmation details:

Trade Details:

Contract: GBP/USD >1.7140 (3PM)

Expiration: Fri Jul 11 15:00:00 EDT 2014

Direction: SELL

Quantity: 3

Price: 42.00

Note: Exchange trading and expiration fees have been excluded

This contract was based on the proposition that the GBP/USD would be greater than 1.7140 by 3:00pm EDT. If you buy that contract, then you are assuming the market will close above that proposition , and therefore be “true”. But the market was falling, so the decision was made to sell the contract, assuming that the proposition would be “false”.

As the chart illustrates, by the time the New York market opened at 8:00am EDT, the GBP/USD pairing was well on its way to a session low at 9:20am, and the contract was never threatened, winding up $126.00 in the money, less $5.40 in trading and expiration fees.

When you backtest this strategy, you will notice that it is relatively easy to identify the session high or low within the first three hours of the trading day (2:00-5:00am EDT). The corresponding low or high will also be revealed after 8:00am EDT. If the market chops sideways in the morning and you can’t find clear market direction or momentum, then you don’t want to use this strategy for that day.

Guidelines for deploying this trading strategy:

Practice this strategy in demo mode before you go live. You can download a free 14 day trial from Nadex. Click Here for a free trial. If you already have a Nadex account, practice this strategy in demo first. Log 30-40 practice trades to make sure you are comfortable before going live with the strategy.
Make sure you are awake and alert at 3:00am EDT.
Review the past few sessions of the GBP/USD. Is the market trending up or down?
Record the previous session close, and the average daily range.
Check the economic calendar for any reports that could affect the GBP/USD. Research any news being released on this currency pairing.
Find the probable session high or low between 2am-5pm. It will usually reveal itself shortly between 3:00am-4:30am EDT. If the direction of the GBP/USD isn’t obvious to you, then you are assuming unnecessary risk, and should pass on this strategy for the day.
Try to find a Nadex proposition that yields between 40-60% in profit for an optimum risk/reward ratio. Generally speaking, the earlier you act once you’ve identified your entry point, the better your profit will be.
Set your contract expiration for 3:00pm EDT. If you select an earlier expiration target, you may be exposed to additional risk from intraday retracements.
If you notice that the trade is starting to turn against you during the trading session, you may have the opportunity to settle your contract before expiration, and protect some of your profits or minimize losses.
Only risk money that you are completely comfortable losing. If you’re not sure what that is, it should be equal to the amount of money you can confidently risk, and go straight back to bed without tossing and turning.

Nadex is a federally regulated exchange (CFTC) that is only available to legal residents of the United States of America.

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If you have been thinking about trading stocks, options, futures, Forex or Nadex, this new, free E-Book from TradingPub book delivers 15 easy-to-follow and proven strategies for trading each of these markets.