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:

1. 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.
2. Make sure you are awake and alert at 3:00am EDT.
3. Review the past few sessions of the GBP/USD. Is the market trending up or down?
4. Record the previous session close, and the average daily range.
5. Check the economic calendar for any reports that could affect the GBP/USD. Research any news being released on this currency pairing.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

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.

Developing the Mindset of a Successful Trader

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

Why is it that some traders are successful, while so many others fail? What are the personality traits of traders who consistently make money and what are the habits of traders who constantly struggle? As my journey back into the markets continues, it is becoming more apparent to me what separates successful traders from those who consistently blow out their accounts.

A key part of becoming a successful trader is having the humility to be patient, invest in education and to become a student of the markets. Over the past 6 weeks, I have registered for over two dozen free webinars hosted by TradingPub. The speakers on these webinars cover a multitude of topics on trading the markets, and they all have different trading plans. But the one thing they all have in common is that they made plenty of trading mistakes before they learned how to become consistently successful.

Getting your mind and body prepared for success is a key component to successful trading. Benjamin Lee, founder of Think Trade Think,  kicked off a marathon 16-hour Trade-A-Thon hosted by TradingPub with an excellent presentation which spelled out the most common trading mistakes and why they happen. He talked about the personality traits of struggling traders versus winning traders. If you are new to trading the markets or if you're struggling, this presentation is worth its weight in gold.

When I sat through this presentation, Benjamin clearly pointed out some of the rookie mistakes that I am making, like overtrading and getting out of trades too early. The presentation also provided a road map for psychologically becoming a better trader.

Successful traders have a sense of calm and confidence about them.They have a defined trading plan and time-tested rules that they follow. They don't trade with great frequency, but they know a good trade when they see it. Unsuccessful traders are nervous wrecks who throw money at the markets, over-trade, revenge trade, act on"hot tips" and bleed out their accounts.

The more I immerse myself in education, the more relaxed and confident I am becoming as a newbie trader. New concepts are tested conservatively in simulation, and trading logs are being kept, charting successes and failures, profit and loss, and risk/reward analysis. If a strategy plays out well in test, then it is deployed into my live trading plan.

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.

Week 3 Diary - Five Rules I've Learned About Trading the Markets

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

As I enter my third week of trading the markets, I've discovered that I have some pretty decent trading instincts, but there is a wealth of information I still need to learn. My plans are to treat trading the markets like a business, and not as a hobby. Here are the top 5 things I have learned thus far:

Rule #1 - Understanding My Appetite for Risk

Trading the markets must be only done with risk capital. Simply defined, risk capital is money you can afford to lose without impacting your lifestyle. It's putting that little bit of extra money outside of savings and retirement funds to work for you. Risk capital is different for everyone, so for the purposes of this blog, I'm going to assume I had a garage sale, found some money in an old, dormant account, and raised $1,000.

Now, what do I do with this risk capital? If I roll the dice and invest it all on one trade, the stress would make my brain explode. If I invested half of that amount, my heart would be racing. But if I trade 5-10 percent of my account, I am relatively calm about the decision. If I have a successful trade, I have grown my little account incrementally. If I lose less than 5-10 percent of my account on a trade, it's disappointing but not emotionally devastating. The bottom line is that I need to adjust my appetite for risk on any trade so I can accept gains and losses without getting emotional one way or the other.

Rule #2 - Invest in Education

I learn by doing research, reading books and through osmosis. Almost every weekday morning, I tune into the a free online Trading Room hosted by Infinity Futures. At 7am (Central Time) Ray Burchett talks about the overnight markets, economic news, and his views on the current state of the markets, focusing primarily on the S&P 500 futures markets. From 8-11, Rollie White trades the markets live with his own money, focusing on 6 key markets he likes to trade. Together, there is over 35 years of trading experience between these 2 speakers. As I tune into the Trading Room, I learn from their experience, and I always pick up new and useful information that I can test and apply to my trading plan. Both Rollie and Ray also take questions from listeners and are happy to answer them. While I am listening to the trading room, I scan the morning news on the markets from Investing.com, Bloomberg, CNBC and a couple of other sites.

I also learn by attending webinars. Part of my new job with TradingPub is to help schedule speakers for free weekly webinars hosted by the site. These speakers talk to every aspect of trading the markets, whether it's stocks, bonds, futures, options, Forex or other trading instruments. As I sit in  on these webinars, I take notes and learn from every webinar. There are so many different approaches and strategies for trading the markets, and every successful strategy has its merits. Finally, I use the internet to research topics I am fuzzy about, and I am reading "The Complete Guide to Day Trading", by Markus Heitkoetter which is an excellent primer for the newbie trader.

Rule #3 -  Always Test Strategies in Demo Mode. Never Try a New Idea in a Live Account

If trading was easy, everyone would do it and make money hand over fist. From my experience thus far, the most important thing for a newbie trader to learn is when a market is truly trending upward, downward or sideways. Once I have identified the direction of the market, then I need to develop tested trading strategies for each scenario. Practicing on a simulator allows me to test market entry and exit strategies, and gives me an opportunity to chart my results without risking real money. I am learning not go live with a trading strategy until I have demonstrated a consistent track record of success. One expert recommends testing a strategy no less than 40 times before going live. I think that's pretty sage advice.

Almost every trading platform allows you to trade in demo mode. From my previous blog posts, I have mentioned that I have started my trading journey on Nadex, primarily because of it's low entry cost. Nadex has an extensive library of free educational webinars for account holders, plus a demo account funded with $25,000 in play money. I have learned only to make tested trading strategies in my live account. I have made a few mistakes trading untested theories live, and paid the price. Lesson learned.

Rule #4 - Keep a Journal of Every Trade

To me, it is critically important to  log every trade I make, both in demo mode and in my live trading account. I keep a spreadsheet and record the following information:

- Date of the trade

- Time of day I executed the trade. Time of day I exited the trade.
- Which underlying  market did I trade?  Indices, commodities, currencies?
- How many contracts did I trade?

- How much money did I have at risk? Was it in line with my risk strategy?
- Profit or loss? Did I make the right decision, stay in too long, or did I exit too early?
- What was my strategy on that trade? Why was my trade successful or not?

Reviewing my journal is a key part of my learning process. While remembering good trades is gratifying, I'm especially focused on my losses. What did I do wrong? When I go back and review what happened, I can usually spot a rookie mistake. Maybe the market really wasn't moving in the direction I thought it was. Maybe there just wasn't enough volume in the market, and I got whipsawed by a fast market reversal. Losing happens to every trader, and every loss can become a teachable moment.

Rule #5 - Take Emotions Out of Trading and Treat it Like a Business

One of the most common mistakes a newbie trader can make is revenge trading. I thought I had the perfect trade and lost. I immediately sought revenge and placed a trade in attempt to win my money back. That's an emotional trade, and it has no place in my business plan. Other mistakes include making trades based on tips from experts. Even the experts lose, and that's a trade rooted in emotional insecurity. Finally, some days aren't good trading days. If the markets aren't behaving to my plan, then I need to learn to stay in demo mode or just walk away from trading that day.

Going back to Rule #1, if I am completely comfortable with the money I have at risk, then trading should be a non-emotional experience. It's a simple business rule of applying money you are comfortable with risking to a tested strategy with a reasonably high probability of success.

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.