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.

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