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.

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 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.

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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

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