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.
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
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.
