Nadex Trade of the Day - Always Trust Your Trading Rules

Today I deviated from my core trading rules on a very simple strategy and it came back to bite me.

A veteran trader once observed that the 7am EST hourly candlestick of the Germany 30 (DAX) Index is a pivot point that determines the direction of that market for the next hour or so.

The rules for this are extremely simple:

• Select the 7am-9am EST Nadex time period
• If the 7am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
• If the 7am EST hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of hourly candlestick.

Sounds simple enough, and it is remarkably consistent. Just be patient and watch the 7am hourly candlestick develop. Once it's confirmed bullish, then buy. If it's confirmed bearish, then sell. If you want to be "super-safe", don't make a trading decision until 8am, after the 7am hourly candlestick has closed.

The past couple of trading days, my indicators pointed to the direction of the DAX successfully. On Monday, all indicators were bullish, and the trade closed bullish. Yesterday, the same indicators were strongly bearish, with a bearish result. Today, they also pointed bearish.

Click on Chart to Enlarge

Going into the 7am hour the Germany 30 Index was bearish, and well below the 5 minute Ichimoku cloud. My other indicators (8EMA, 50SMA and Stochastics) were also pointing to a bearish session.

7:00am: The Germany 30 (DAX) market opened at 10628.  The first 5-minute candlestick was significantly bearish. Convinced that the market was going to be bearish, a pending/working order was placed to SELL at 10646, the first strike price above the opening price. Risk $50. reward $50. Now it was just time to wait for a fill.

7:30am: The market starts to come back up, and it breaks into the cloud. At 7:37, my pending order fills and I'm in the market with a SELL order at 10646, risking $50 to make $50. Now I need the market to go back down.

8:00am: The 7:00am hourly candlestick closed bullish at 10668. Now I'm on the wrong side of my trading rules with a sell order in the market. The odds are stacked heavily against me at this time. The first 3 candlesticks of the 8am bar were bearish, offering a little hope. Then the market ground back up. At 8:25 there was a nice bearish candlestick giving one last glimpse of hope.

8:30: The market moves back up. Time to bail out of the trade. Took a $39.50 loss on the trade. The session expired at 10667, 39 points above the 7:00am opening price.

I trusted my indicators over the simple price action rules of this strategy and it cost me today. A nice winning streak came to an end. If I had waited patiently, the bullish nature of this candlestick would have been confirmed by 7:50am. According to the rules of this strategy, I would have placed a BUY order at 10626. There's no way I would have gotten a 1:1 risk reward ratio, but I could have safely gotten a deep into the money order, risking $80 to make $20. At the very worst, I would have placed a working order that never filled.

The other mistake I made was not taking earnings season into consideration. Although my indicators were bearish, AAPL blew the roof off their earnings estimates, which propelled the markets upwards when they opened. Lesson learned. Stay patient, and watch the 7am hourly candlestick develop.

For more about the rules of the Germany 30 (DAX) Strategy with Nadex, click below:

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.