The Inquisitive Trader: February 2015

Saturday, February 28, 2015

Nadex Trade of the Day: Germany 30 (DAX) Strategy Fails on GDP News

Trading into major economic always involves risk, and sometimes it is just wise to sit on the sidelines until the market completely digests the news. Friday was a day when a highly consistent strategy was defeated by the news.

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. This strategy was based on the observation from a veteran trader who remarked 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 the strategy are remarkably simple:

Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
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.

This is a very simple strategy that 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.

To backtest this strategy, simply pull up the hourly chart of the DAX, and compare the 7am EST hourly candlestick to the 8am hourly candlestick. On the great majority of trading days, you will notice that if the 7am hourly candlestick is BULLISH, then the 8am hourly candlestick will close ABOVE the 7am opening price. Conversely, if the 7am hourly candlistick is BEARISH, then the 8am hourly candlestick will close BELOW the 7am opening price.

Try it for yourself. You can find DAX feeds on the Nadex charts (Germany 30) or on Investing.com. For those who use thinkorswim, there is no feed for the DAX.

Let's look at the 7am-9am Germany 30 (DAX) trade for Friday, February 27 2015:

Click on Nadex Chart to Enlarge

7:00am - The market was on an uptrend going into the 7am-9am time frame. The 7am hourly candlestick of the Germany 30 (DAX) market opened at 11339.200, and started grinding upward before trading sideways for the rest of the hour. The 7am hourly candlestick closed bullish at 11345.500.

8:00am - Under the rules of this strategy, a 7am hourly BULLISH close triggered a BUY from the first Nadex strike price BELOW the 7am opening price of 11329.200. The following pending/working order was placed:

BUY at >11329 (EXP 9AM) (1 contract): Risk $50, Reward $50

In order for this pending/working order to fill, the market needed to retrace significantly to fill the order. US GDP reports were due to be released at 8:30, so it was time to remain patient.

8:30am - The US GDP reports were released, and they missed analysts expectations. The market started to dive sharply toward the pending/working order. The market was behaving like a falling knife, so the decision was made to cancel the pending order and get out of the way. Sure enough, the DAX shot downward past the 11329 strike price and expired out-of-the-money at 11322.100

No harm, no foul, no trade. The pending BUY order was cancelled before the market had an opportunity to fill it. If the order would have filled, it would have lost.

In hindsight, here's how I might have traded today differently

Wait until the the release of the US GDP News report at 8:30 and SELL the market from the 11349 strike price. This would have required some dexterity, because the market dove pretty quickly, and the market may have offered an unacceptable risk/reward.

If you strictly followed the rules of the 7am-9am Germany 30 (DAX) strategy, and BOUGHT the market at the first strike price BELOW the 7am opening price, then your trade would have been a loser. Be very careful trading into major economic news.

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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.

Monday, February 23, 2015

Lunchtime "Caret" Trade on the S&P 500 with Nadex Binary Options

By Sean Jantz, Founder
Binary Trade Group

If your work schedule doesn't permit you to trade during the day, here's a trade that you can make almost every day on your lunch break.

Many traders avoid trading at lunchtime because there is just not much volume in the market. With Nadex Binary Options, the lunchtime "Caret" Trade allows you to take advantage of declining lunchtime volume on the S&P 500 Futures market.

Quite often, after a busy morning session, volume on the S&P 500 has a tendency to start declining, usually after 10:00am EST. The market, which has been grinding upward hits resistance, and then starts forming an upside-down "V" pattern. I call it the "Caret" trade because it resembles the "^" symbol above the number 6 on your keyboard.

Click on Chart to Enlarge

In today's lunchtime trade, the "Caret" trade is in play. The market started moving upward after 10:00am as volume declined. At noon, the market hit resistance on the Keltner Channel and the indicators on the Fisher Transformer were lined up overbought. A reversal Star candle signaled a potential reversal. Sure enough, it happened:

Click on Chart to Enlarge

The market started to reverse with a strong SELL signal on the Fisher transformer. The following order was placed:

Trade Details:
Contract: US 500 (Mar) >2107.3 (1PM)
Expiration: Mon Feb 23 13:00:00 EST 2015
Direction: SELL
Quantity: 2
Price: 20.00

Two contracts were being sold, with a maximum risk of $160 and a maximum reward of $40 for this deep in the money trade. Now it's time to see how this trade played out on the Nadex charts:

Click on Chart to Enlarge

Vertical lines were plotted on the Nadex chart (above) denoting the 11am-1pm time frame. As you can see, the 2107.3 strike price chosen was well above the peak of the market, and when the market reversed it was time to kick back and enjoy lunch.

The trade settled in the money for full profit of $40 at 1:00pm, less $3.60 in exchange fees..

About Sean Jantz:

Sean Jantz is Founder of The Binary Group (BTG). He trades mainly Binary Options using the NADEX exchange. Additionally, he makes LIVE Calls on opportunities for members of the BTG private Facebook group on a daily basis, along with other BTG instructors. BTG provides new and experienced traders with daily training sessions for trading Nadex Binary Options.training, and has helped so many in honing their trading skills.

More information about the Binary Trade Group:

Website: http://www.binarytradegroup.com

Free Nadex Education Reminder:

Monday, Feb. 23 The Ultimate Hedge Strategy 6pm-7pm CST Register Here
For the full schedule of free February Nadex webinars, click here.

Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories

Video: Sean Jantz Breaks Down Today's "Caret" Trade

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Friday, February 20, 2015

Nadex Trade of the Day - A Time-Tested Strategy is Challenged

Every once in a while, the rules of a really strong strategy can get tested, tempting you to deviate from your rules. If the strategy is strong enough, sometimes you just have to stick to the rules and trust that the odds of success are in your favor. Today was was the 2nd time this week that the rules of a high probability strategy were challenged, but the strategy held. Today's trade involves the 7am-9am EST Germany 30 (DAX) strategy using Nadex binary options.

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.

While this sounds really easy, sometimes it can be a little bit difficult to execute. Sometimes the formation of the 7am hourly candlestick isn't obvious until 7:45 or later. Patience is a key to this strategy.

Click on Nadex Chart to Enlarge

6:45am EST: Time to pull up the charts and check the economic calendar. No economic news of any importance. The candlesticks were riding above the T-Line (8 EMA) and the 50 MA on the 15 minute charts. Looked like it might be a bullish 2 hour session ahead for the Germany 30 (DAX).
7:00am: The Germany 30 (DAX) Index opened at 10991.933 and took off like a rocket. The first 5-minute candlestick closed at 11082.90, over 90 ticks above the 7am opening price! From that point forward, the market started grinding its way back down back to almost the opening price.
8:00 am: The 7am hourly candlestick closed barely bullish at 10994.700. From months of trading, testing and back-testing this strategy, there is a strong probability that the 8am hourly candlestick will close above the 7am opening price. The following pending/working orders were placed:

BUY Germany 30 (Mar) >10986 (9AM) - 1 Contract Risk $50, Reward $50
BUY Germany 30 (Mar) >10966 (9AM) - 3 Contracts Risk $80, Reward $20

Both orders filled almost immediately.
8:10 am: The Germany 30 (DAX) made a sharp downward move, and breached the 10986 level. By 8:25 it had also briefly breached the 10966 level. which was palsed for insurance against the 10986. order. If the 10986 order failed. it was highly likely that the 10966 order, would recoup the losses. Next the market moved sharply up, before reversing again, threatening the 10986 order.
8:50 am: Finally, a big spike north, making both orders good. The 7am-9am Germany 30 (DAX) strategy expired safely in the money at 10999.967, above the BUY orders at 10986 and 10966.

Today's trade was an exercise in trusting the rules of a strategy and its probability of success. The DAX actually expired above the 7am opening price, even though it was a test of nerves down the stretch. It would have been very easy to exit early and cut losses at the 10986 trade, but the decision was made to trust the rules of the strategy and hold firm until expiration. For the 2nd time this week, the rules of a time-tested strategy were challenged, and the strategy held.

Calendar of Free Nadex-Sponsored Webinars:

Monday, Feb. 23 The Ultimate Hedge Strategy 6pm-7pm CST Register Here
For the full schedule of free February Nadex webinars, click here.

Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories

For more about the 7am-9am EST Germany 30 (DAX) Strategy, click below

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Thursday, February 19, 2015

Lunchtime Trading the S&P 500 with Nadex Iron Butterflies

If you have a busy daytime work schedule and can't follow the markets the way you would like to, here's a trade you can take on your lunch hour. I have recently been following a strategy presented by Christopher Wall, Official Trader and Educator with the Binary Trade Group. After watching a couple of trades play out, and doing some back-testing, I decided to try it out in my Nadex demo account. After a half-dozen trades or so, I am very pleased with the results thus far.

Many traders avoid trading at lunchtime because there is just not much volume in the market. With Nadex Binary Options, the "Iron Butterfly" strategy allows you to take advantage of low volume and a sideways-traveling market. While there are several strategies and indicators you can use, my strategy has pretty simple rules:

Select the 11am-1pm EST time frame for the US 500 Index, which mirrors the emini S&P Futures Market (/ES).
Draw support and resistance lines at the daily high (resistance) and daily low (support) prices for the market.
Place a SELL order at the first strike price ABOVE daily resistance, and a BUY order BELOW the daily support line.
Place a working/limit order that satisfies your risk/reward criteria. Since both of these pending orders are probably deep into the money. You may want to "leg into" this trade, and wait for the market to come close to you before you place your trade. The closer the market comes to your BUY and SELL strikes, the better your risk/reward will likely be.
If both sides of your Iron Butterfly fill, it's time to manage the trade. If the market threatens one of your trade nearing expiration, you may wish to exit that leg to preserve some profit or minimize losses. The other leg will be good. If the market is chopping sideways between both strikes, then you may wish to just sit back, enjoy your sandwich and let both sides of the trade expire in the money for full profit.
That's it. Straightforward and simple. Pleas bear in mind, there are a lot of ways to look at trading this strategy, and I highly recommend watching Christopher Wall's video at the bottom of this post. He does a great job of explaining Iron Butterflies in greater detail.

Let's take a look at yesterday's "Iron Butterfly" Trade: (February 18, 2015):

Click on Chart to Enlarge

Vertical lines were plotted on the Nadex chart (above) denoting the 11am-1pm time frame. Looking back on price movement for the day, Resistance was at 2095.5 and support was established at 2089.5. Using the rules described above, the following pending/working orders were placed:

Trade Details:
Contract: US 500 (Mar) >2095.5 (1PM)
Expiration: Wed Feb 18 13:00:00 EST 2015
Direction: SELL
Quantity: 5
Price: 25.00

Trade Details:
Contract: US 500 (Mar) >2089.5 (1PM)
Expiration: Wed Feb 18 13:00:00 EST 2015
Direction: BUY
Quantity: 5
Price: 75.00

Both pending orders were deep in the money risking $75 to make $25, per contract. Time to be patient and see what happens.

The SELL order filled at 11:25am, when the market peaked. For the next hour, the market moved down and then sideways. It didn't look like the BUY order would fill. At 12:40, the market dropped just down far enough to fill the pending BUY order. Now both sides of the Iron Butterfly are in the market. Time to manage the trade.

With 15 minutes left in the trade, it was time to manage the BUY side of the trade. The SELL side appeared safe. At 12:45, the market spiked up briefly, making the BUY contract worth $50. If this trade were a live trade versus a demo trade, the smart move might have been to exit the BUY order for a guaranteed $50 profit. But this was a demo trade, and I wanted to see how the market responded to my rules. At 12:50, the market came down further, threatening the bottom leg of the Iron Butterfly before running out of gas and expiring in the money.

Both sides of the Iron Butterfly expired in the money for a gross profit of $250.00, less $18.00 in exchange fees for a net profit of $232.00. That will buy a nice lunch!

There are a lot of ways to implement this strategy. With just 6 of these trades under my belt, I won't trade this strategy live until I have at least 20 demo trades under my belt. But it looks very promising thus far. Special thanks to Christopher Wall and the Binary Trade Group for exposing me to this strategy.

About Christopher Wall:

Christopher Wall is an official trader and educator with The Binary Group (BTG). He trades mainly Binary Options using the NADEX exchange. Additionally, he makes LIVE Calls on opportunities for members of the BTG private Facebook group on a daily basis, along with other BTG instructors. BTG provides new and experienced traders with daily training sessions for trading Nadex Binary Options.training, and has helped so many in honing their trading skills.

More information about the Binary Trade Group:

Website: http://www.binarytradegroup.com

Free Nadex Education Reminder:

Thursday, Feb. 19 Advanced Trading Strategies (Part Three) 8pm-9pm CST Register Here
For the full schedule of free February Nadex webinars, click here.

Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories

The Purpose of this Blog

Disclaimer

Wednesday, February 18, 2015

Nadex Trade of the Day - Trading the USD/JPY on Economic News

By Stefan Katanić, Founder
Traden Group

Trading into the news can be risky, but can also be quite profitable if you have a good plan for trading into news events.

On Friday, February 13, several economic news reports were released, including the Michigan Consumer Sentiment reports at 10:00am EST. If the actual reports vary widely from analyst's forecasts, it can have a dramatic effect on the markets.

Prior to 10:00am EST, it was time to take a closer look at the US Dollar Index futures (/DX) on the thinkorswim platform. It was also time to take a look at the Japanese Yen (/6J) and the USD/JPY currency pair:

Click on Chart to Enlarge

The US Dollar Index (left panel) was trading at a resistance level, and the Yen (right panel) was trading at a support level. Before the release of impactful economic news, it's important to look at volume and price action before the actual release of the news.

Since the Michigan Consumer news reports were being released at 10:00am, the 9am-11am time period was selected in Nadex for the USD/JPY Forex pair. Now it was time to wait for the news release:

Courtesy of Investing.com

The Michigan Consumer news reports missed estimates badly, which had a negative impact on the US Dollar. As soon as the news was released, the market plummeted, and the following trade was placed:

Trade Details:
Contract: USD/JPY >119.00 (11AM)
Expiration: Fri Feb 13 11:00:00 EST 2015
Direction: SELL
Quantity: 2
Price: 32.00

Two contracts were sold, with a maximum risk of $136 and a maximum reward of $64.

Click on Chart to Enlarge

As the chart clearly illustrates, the market dove on the news, before trading sideways for the rest of the day. This trade was never threatened, and expired in the money at 11:00am EST.

About Stefan Katanić:

Stefan is a founder of Traden Group Traden Group provides live trading rooms, signals and setups for Nadex, IG Group and Forex traders.

Free Nadex Education Reminder:

Thursday, Feb. 19 Advanced Trading Strategies (Part Three) 8pm-9pm CST Register Here

For the full schedule of free February Nadex webinars, click here.

Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories

For Traden Group Tips on Trading Economic News with Nadex, Click Below

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Tuesday, February 17, 2015

Nadex Trade of the Day - When You Have a Good Strategy, Trust the Rules

Every once in a while, the rules of a really strong strategy can get tested, tempting you to deviate from your rules. If the strategy is strong enough, sometimes you just have to stick to the rules and trust that the odds of success are in your favor. Today was one of those days for the 7am-9am Germany 30 (DAX) strategy using Nadex binary options.

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.

Click on Chart to Enlarge

6:45am EST: Time to pull up the charts and check the economic calendar. No economic news of any importance. The candlesticks were riding above the T-Line (8 EMA) and the 50 MA on the 15 minute charts. The candlesticks were above the 5-minute Ichimoku cloud and the next 2 hours were pointing bullish. All indicators were in agreement, and no economic news to muddy the waters.
7:00am: The Germany 30 (DAX) Index opened at 10889.167. On the 5-minute chart (shown above), the first four candlesticks were bullish, which suggested that the hourly candlestick would probably be bullish. This triggered the following pending order:

BUY Germany 30 (Mar) >10887 (9AM) - 1 Contract Risk $50, Reward $50

This order was placed as pending/working order and the market needed to retrace in order for it to be filled. Time to be patient.
8:00 am: The 7am hourly candlestick closed bullish at 110910.467. From months of trading, testing and back-testing this strategy, I am confident that there is a very a strong probability that the 8am hourly candlestick will close above the 7am opening price.
8:25 am: The Germany 30 DAX was on a sharp downward move, and breached the 10887 level, filling my pending order at 8:28. I'm now in the market with a BUY order, risking $50 to make $50. Now the market needs to churn back north.
8:40 am: The market moves down further, threatening my position. At this time, the following order was placed:

BUY Germany 30 (Mar) >10867 (9AM) - 3 Contracts Risk $75, Reward $25

This order filled. From backtesting, experience has shown me that it is very rare for the next strike price down the ladder to be breached. If the first order fails, it is backed by the second order like an insurance policy.

8:45 am: The market continues to dive, now threatening the backup order. Is it time to bail and cut losses, or is it time to trust a time-tested strategy? The decision was made to stand firm and trust the rules of the strategy.
8:50 - 9:00 am: The market turned around and headed north, making the backup order safe. It kept grinding upward, and expired at 10888.400, making both orders good, yielding a gross profit of $125, less $7.20 in exchange fees for a net profit of $117.80.

Today's trade was an exercise in trusting the rules of a strategy and its probability of success. The DAX actually expired below the 7am opening price, but not below the strike price chosen according to the rules of the strategy. It would have been very easy to exit early and cut losses, but today the rules of the strategy held.

Calendar of Free Nadex-Sponsored Webinars:

Thursday, Feb. 19 Advanced Trading Strategies (Part Three) 8pm-9pm CST Register Here
For the full schedule of free February Nadex webinars, click here.

Curious about Nadex? Open a Free, 2-Week Nadex Demo Account!
Nadex is available to legal residents of the United States, Canada, Mexico and U.S. Territories

For more about the 7am-9am EST Germany 30 (DAX) Strategy, click below