Are the Markets Due for a Short-Term Correction?

 

The markets have been exuberantly  bullish since Election Day on November 3.

In spite of election challenges, unemployment news, and a global sense of unease about food and housing security, the markets have continued to churn upward at a very bullish clip.

The certification of election results, coupled with the distribution of a Covid-19 vaccine are continuing to fuel bullish momentum.

And Wall Street continues to be optimistic, citing strong 4th quarter numbers and a positive outlook going forward. "I do think we hit rock bottom , and we're growing", said JP Morgan Chase's Jaime Dimon at a virtual teleconference.

From a technical standpoint however, the markets have been very "toppy".

The emini S&P 500 Futures have been travelling aggressively above the T-Line (8 EMA), shown in purple.  Price moved down to the T-Line on December 9, and broke below the T-Line on December 10 largely due to a dismal jobs report.

IF price closes below the T-Line, then I could easily see selling pressure coming into play.

First target: 3550, where price was previously in consolidation

Second target: 3000, or when the market touches the 50 SMA, shown in gray.

If this happens, it's quite possible that this will be just a normal correction.

On December 15, the Electoral College votes will be certified. Barring a major surprise, the markets could resume their bull run.

Markets Take the Stairs Going Up, and the Elevator Going Down

 

When markets rally, it's usually a slow and deliberate climb on the way up. Just like taking the stairs walking up in a high-rise building. When markets sell off, the drop is usually fast and steep, just like taking the elevator on the way down.

Let's look at a daily chart of the US 500 Index.

Look at the difference between the length of each green daily candlestick on the way up. You will quickly notice that they are much smaller than the red candlesticks on the way down.

It's also important to note the relationship of the markets in relationship to  the "T-Line" (8 EMA), which is plotted in purple. On an uptrend, the market travels above the T-Line. On a downtrend, the market travels below the T-Line.

Finally, Stochastics (set at 12,3,3) can help you identify when markets are overbought or oversold, signaling a potential reversal. When it's above the 80 line, a move to the downside is imminent. If it's below the 20 line, a rally back to the upside is also imminent.

Election Week - What's happening?

The US Equity Indices (Dow, Nasdaq, S&P 500, Russell 2000) all broke sharply below the T-Line which suggested that strong selling pressure was in progress.

You can argue all day long as to why that is happening. Covid-19 surge, Stimulus deal delayed, Election-Day jitters prompting a wave of profit taking, or maybe a combination of all. To me, none of that matters. The charts graphically depict investor reaction to the events of the day.

How to trade this?

For my part, I have been extremely cautious over the past 2 weeks. While I trust the market's relationship with the T-Line, I'm also aware that markets can reverse sharply on a tweet.

So, I have consciously made the decision to reduce my exposure to risk through the General Election.

With Nadex, there are a few ways to do that:

1. I can reduce the number of contracts I trade, thus limiting the amount of capital exposed to risk.
2. I can adjust my risk per trade, risking less per contract for a greater reward.
3. I can do both of the above

Stocks take the elevator going down, and this week has been a classic illustration of that adage.

On Tuesday evening at 6pm ET, Nadex opened with fresh new strikes for the following day. The markets closed bearish that day for the 2nd consecutive day, so the decision was made to follow the prevailing down trade, but also to choose a strike price that would reduce my exposure for risk, while maximizing potential gain.

I placed Limit Orders for the following US Equity Indices:

US 500 (Dec) >3363.0  Max Risk $40, Max Reward $60 per contract x 5 contracts

US SmallCap 2000 (Dec) >1570.0  Max Risk $30, Max Reward $70 per contract x 5 contracts

US Tech 100 (Dec) >11460  Max Risk $30, Max Reward $70 per contract x 5 contracts

Wall St. 30 (Dec) >27120  Max Risk $20, Max Reward $80 per contract x 5 contracts

I also placed 2 trades on Forex pairs. One trade one, the other was losing. They cancelled each other out.

In total, I had $600 tied up in risk on the US Equity Trades.  By 8:30am ET, I closed those trades out for $965, representing a 160 percent return on capital risked overnight.

Not a bad trade to wake up to. I decided to cash out with a handsome profit simply because there was no way of telling what the markets would do after the Opening Bell.

This was a low risk, high reward approach to trading uncertainty in the week prior to the General Election.

Using Knockouts to Trade the "Rubber Band" T-Line Trade

 

In my last blog post, I talked about the "Rubber Band" T-Line Trade.

While I'm not crazy about the name of this strategy, it does depict the relationship betwen the 3 Exponential Moving Average (EMA)against the T-Line (8 EMA).

These 2 moving averages track along with each other, but the 3EMA occasionally gaps away from the T-Line. When that happens, just like a stretched rubber band, it always snaps back.

You can catch some very nice price moves with Nadex, risking very little for a potentially nice gain. All you need to do is spot the gap away, and then look for the snap-back to happen.

Today the  US 500 was on a down trend, and the 3 EMA was Gapping away from the T-Line on the 4-Hour charts.

Notice how the Green 3 EMA gapped down away from the purple T-Line. Just like it has done in the past, the market was trying to make its way back to the T-Line.

That's when I decided to try doing a Nadex "Knock-Out" Trade.

Knockouts resemble traditional futures trades, with the exception that they have a hard floor and a hard ceiling. 

In today's case I decided to go long at 11:41am from 3459.9. I chose the 3440-3490 Knockout spread. My maximum risk was approximately $200 for a maximum $300 reward. Each tick the market moves is equalized at $1.

If price travels through the floor of the Knockout bracket, then I'm knocked out for the maximum $200 loss. If price travels through the ceiling of the knockout bracket then the trade closes, and I collect the maximum $300 profit.

You are not married to the trade. You can exit any time you want to lock in profits or to pare losses.

In this case, my profit target was a touch of the T-Line, about 70 or so ticks away.

Sure enough, the market ground its way back up to the T-Line and I exited for a 65 Tick profit, or $65 on one contract traded.

There are lots of ways to trade with Nadex, and Knockouts can be a nice way to capture sudden price moves.

The "Rubber Band" T-Line Trade

 

What happens when you pull back on a rubber band? It snaps back, right?

The same happens with price in the markets when you plot the 3 Exponential Moving Average (EMA) and 8 EMA on your charts. 

The 8 EMA, also known as the T-Line, is an excellent indicator for determining whether a market is on an uptrend or on a down trend. Simply put, if price is traveling above the T-Line, then you are in an uptrend. If price is traveling below the T-Line, you are in a downtrend.

The 3 EMA tracks along with the 8 EMA, but every time it gaps away too far, it snaps right back to the T- Line, as seen on the chart below.

Notice what happens every time the 3 EMA (plotted in green) gaps away from the purple T-Line. It snaps back like a rubber band. In fact, the further it gaps away, the harder it is more likely to snap back.

This can provide some excellent trading opportunities if you spot the 3 EMA gapping away from the T-Line.

In the daily chart above you can see that the US 500 futures are bullish, but also gapping above the T-Line. Looking at the intraday 15-minute charts, the US 500 started to plunge. 

Knowing where the market had the potential to drop to, I chose to SELL the US 500 with Nadex Binary Options as soon as price started to plummet at a price level nearer to the T-Line.

This was a low-risk, high reward trade. I sold 5 contracts, risking $14 to make $86 per contract with a daily expiry of 4:15pm ET. My maximum risk was $70 for a maximum reward of $430.

Within 90 minutes, the market dove through my strike price and kept diving, like the rubber band snapping back. This trade was flashing a profit of $398.75 and I opted to close the trade for a 560% return on capital risked with in 90 minutes.

When you plot the 3 EMA and the 8 EMA on your charts, it will expose some prime opportunities to capture fast intraday price movements.

Using the 80 Percent Rule in Your Trading

 

If your charting platform supports Market Profile or Volume Profile, then there is a way to identify potential large moves in price during the day. 

Volume/Market Profile shows you where 70% of the previous day's transactions occurred. Without getting too deep into Volume/Market Profile, there is one trading strategy called the 80% Rule.

In this 15-Minute chart of the emini S&P 500 futures, the gray box represents the Value Area Box. Again this box depicts where 70% of price volume occurred during the previous day.

The 80% Rule

If price enters the Value Area Box and remains inside the box for an hour or so, then there's an 80% chance, that price will travel to the other side of the box.

In this example, price dropped down and penetrated through the Value Area Box at 10:45am ET. By noon, it had traveled down halfway through the box.

Anticipating a move to the bottom of the box, I selected a strike price at >3265 for a SELL order, near the bottom of the box.

Since the >3265 strike price was well below the price at around noon, I was able to place the trade with low risk for high reward.

Contract Details:

11:58 EDT: SELL US 500 (Dec) <3265 for $78.75 per contract
Trade Expiration: Daily at 4:15pm EDT
Number of Contracts: 10
Max Risk, per Contract: $21.25 for $212.50
Max Reward per Contract: $78.75 for $787.50

Here's what happened...

After moving against me briefly on a pullback, price took a hard dive through the bottom of the Value area box and blew through the strike price.

At 3:01 EDT, I decided to Exit the trade, with a BUY for $10.25 for a $68.50 profit per contract traded, or $685.00, less exchange fees of $20.

The 80% rule can provide a great opportunity to capitalize on price movement if you spot the opportunity.

Riding a Rollercoaster Week

 

The U.S. markets had been on a nice, steady progressive uptrend for the past several weeks.

Wednesday was no exception and then the markets gapped-up huge. Would the bull market continue on Thursday? To my way of thinking, why not. I placed my bullish orders on all the US Equity Indices, risking $50 to make $50 per contract. 

A shared my bullish market out look with a mentor, Stephen Bigalow. He advised me to be careful, explaining that a large gap-up can also result in profit-taking coming in. While I had the opportunity to back out of my orders for a tiny loss, I decided to stay in the trade.

Stephen was right, and I got run over. When I woke up in the morning, I was deep in the red. All of my trades closed for total losses. In all, $1,500 was lost.

While that hurts, there was a silver lining to this trade.

1. With Nadex, there is a maximum risk on every trade. Sure, I lost $50 per contract, but in Thursday's free-fall, it could have been much, much worse. I'm sure many futures and stock traders felt run over.
2. I only exposed 2% of my account on each trade. I can recover from that.

Sure, Thursday sucked. But I was glad that I stuck to risk management. Losses happen.

Okay, On to Friday...

Here was my thought process for Friday:

"Bull Markets take the stairs on the way up. Bear Markets take the elevator on the way down."

With the steep selloff on Thursday, I expected continued profit-taking going into the Labor Day Weekend. This got me thinking about placing some out-of-the-money SELL trades on the indices.

At 6pm ET, when Nadex opened on Thursday night. I placed limit SELL orders on the four US indices,  at strike prices where I could get $25 risk for $75 reward. 

SELL US 500 (Sep) >3428 @ $75 (6 Contracts)  Max Risk: $150  Max Reward $450
SELL US SmallCap 2000 >1541.0 @ $75 (6 Contracts)  Max Risk: $150  Max Reward $450
SELL US Tech 100 (Sep) >11608 @ $75 (6 Contracts)  Max Risk: $150  Max Reward $450
SELL Wall St. 30 (Sep) >28150 @ $75 (6 Contracts)  Max Risk: $150  Max Reward $450

The Opening Bell was working against me, and then, sure enough, the bottom dropped out.

In just over an hour, most of my trades were up big, resulting in a $1,410 available profit out of a maximum total of $1,800 available.

With 5 hours remaining in the trading day, I opted to cash out. In just a few hours, I was able to recoup almost all of the losses from the previous day.

4:15 Daily Expiry Values

SELL US 500 (Sep) >3428 Closed at 3418  Max Reward $450 would have been achieved.
SELL US SmallCap 2000 >1541.0 Closed at 1531.5  Max Reward $450 would have been achieved
SELL US Tech 100 (Sep) >11608 Closed at 11550  Max Reward $450 would have been achieved
SELL Wall St. 30 (Sep) >28150  Closed at 28070  Max Reward $450 would have been achieved

A Simple Way to Understand Trading Nadex Binary Options

 

Football season is finally happening, at least for some colleges. And in this example, you're at a sports bar watching Navy play Air Force. 

You're rooting for Navy, and your buddy sitting next to you went to the Air Force Academy.

After a little bit of friendly smack talk, you decide to place a wager on the game. Both teams are evenly ranked by the oddsmakers.  Each of you places $50 on the bar. If Navy wins, then you're right, and you pick up the $100 on the bar. If Air Force wins, your buddy picks up the money, and you collect nothing.

That's exactly how Nadex Binary Options works.

You have an opinion about where price will finish, relative to a price level and a fixed period of time. For example, your statement could be:

The US 500 Index will finish ABOVE the 3504 Price Level when the market closes today at 4:15pm ET.

Using the football analogy above, you decided to put up $50, which is deducted from you trading account. For this trade to be accepted, someone needs to take the other side of the trade for $50.

If the market closes a hair above 3504 at 4:15, you collect $100*
If the market closes at or below 3504 at 4:15, you collect $0*

With Nadex Binary Options, every contract must add up to $100 to be an active trade:

• If your maximum risk is $40, then the person on the other side of the trade is risking $60
• If your maximum risk is $55, then the person on the other side of the trade is risking $45
• etc., etc.

IMPORTANT NOTE: YOU ARE NOT MARRIED TO THE TRADE

In most cases, you can exit a trade if you want to lock in a sure profit, or to minimize losses if a trade starts moving against you.

How does Nadex make their money? Nadex makes money by charging an exchange fee of $1.00 per contract, per side to facilitate trades.

In this trade example, the US 500 Market had been on an extended daily uptrend, closing at 3503. The belief was that the trend would continue on it's upward grind, as it has done the past 9 out of 10 days. The closest daily strike price was 3504. The decision was to to go long from 3504, risking $50 to make $50. and the order was filled.

TRADE RESULTS

The US 500 Closed at 3496, below the 3504 strike price. Although there were plenty of opportunities to exit this trade for a partial profit, I opted to stay on the side of the uptrend and let the trade ride. 

Payout $0, for a $50/contract loss.

A Simple Way to Follow a Trend with Nadex

 

Since the Covid-19 Market Selloff in the Spring of 2020, the US Equity Indices have made a steady, rebound. Looking at the charts, the uptrend shows that roughly 7 out of 10 trading days are bullish, compared to the previous day.

Let's take a look at the emini Nasdaq (/NQ) Daily Chart.

This chart is grinding steadily upward, riding above the 3 EMA, the T-Line (8 EMA) and the 50 and 200 day Simple Moving Averages. With this kind of uptrend, you just want to stay long until the market closes below the T-Line.

Here's a simple, set-it-and-forget-it  way to trade this uptrend with Nadex. The simple proposition is that the /NQ will close tomorrow ABOVE today's close.

1. Record the previous day's close. In this example it was 11636
2. At 6pm ET, when Nadex opens, find the Daily Expiry (4:15pm) strike price nearest the previous close. In this case, the strike price was 11632
3. Place a Limit/GTC Order to BUY the US Tech 100 (Sep) Index  >11632 for $50 per contract.
4. Select the number of contracts you wish to trade. For any trade I make, I like to be as close to 2% account risk per trade. This is a demo account with a $16,000 balance. 2 percent is $300, so 6 contracts were purchased.
5. Maximum Risk is $300 on this trade. Maximum reward is also $300 (less exchange fees).
6. Place the Limit order and wait for it to fill.

Let's see how this trade is playing out:

• The Limit Order was placed at 6PM ET Monday Evening
• The Limit Order filled at 7:15am Tuesday Morning.
• After taking some heat at the Opening Bell, the trade moved up sharply.
• With 4 hours, 51 min. remaining in this trade, it is up $168 out of a maximum $300 available.

I'm going to let this trade run until expiration. All it has to do is finish 1 tick above 11632 to collect the maximum profit of $300 and to confirm the resumption of the bullish uptrend.

If the NQ settles at or below 11632, then I collect $0, and I forfeit the $300 I put up as risk money to secure the trade. It will be a small 2%  loss against a trend where the odds were on my side.

Trade Conclusion

This trade took a little bit of heat in the morning, but took off in the afternoon settling at 11726, well above the 11632 strike price. Maximum profit of $300 was collected (less exchange fees), for a 100% return on capital risked.

August 3-7 Markets Continue to Climb

Trading Out of the Money Binary Options

The markets were tumultuous last week, but managed to remain resilient.

S&P 500 futures opened positive Monday above the T-Line (8 EMA), continuing its push upward. Until there's a close below the T-Line, investor sentiment remains bullish.

Click on Chart to Enlarge

With this information in mind it was time to take a look at Nadex for a bullish binary options strike price.

Shortly after the Opening Bell the /ES (S&P Futures - Sep) was trading at 3284. The nearest strike price with a Daily Expiration (4:15PM ET) was > 3293

So Here was the Proposition I was Trading:

"The US 500 Index will settle above 3293 by 4:15 PM ET Today when the market closes"

This is called an Out-of-the Money Binary Option. When I placed this trade, the market was at 3284, the marketplace of buyers and sellers determined that there was about a 30% chance that price would rise above the 3293 price level by 4:15 PM. 

My rationale behind the trade was that the market would continue to grind North for the day, and not reverse course. With $30 maximum risk per contract, I bought 5 contracts.

Trade Details:

Number of Contracts Purchased: 5
Maximum Risk per Contract*: $30   $150 total
Maximum Reward per Contract*: $70   $350 total

* prices do not include exchange fees

Click Chart to Enlarge

With Nadex Binary Options, every contract is equalized at $100. If, I'm assuming $30 risk for my out-of-the-money trade, then the person on the other side of the trade is putting up $70 risk in the belief that I will be wrong.

When the trade filled, the maximum risk ($150) is withdrawn from my account. The person on the other side of the trade put up $350, making the pot even at $500.

At 4:15 PM when the market closes, then there are only 2 possible outcomes:

1. I am right. The market closed above 3293, and I collect $500 (less exchange fees), or
2. I am wrong. The market closed at or below 3293, and I collect $0

Important Note: I am not married to this trade.

At any time, I can choose to exit the trade if I want to lock in a sure profit. I can also exit the trade if I feel the market is moving against my trade plan to minimize losses.

Trade Results

Click Chart to Enlarge

With an hour and a half until expiry, this contract was flashing $152 in available profit vs. $150 risked. The 3293 price level was holding up as resistance and the S&P 500 was up over 30 points on the day. Stochastics were overbought.

In these volatile markets, any end-of-day profit taking or a sell-off would take the shine off of a nice profit. Trade closed for 100% profit vs. capital risked.

What Happened at the 4:15 PM Expiry?

Just after I took the $152 profit, the market started selling off. It dove down to 3282, before trying to make a brief rally back. If this trade had been held until expiry, the payout would have been $0 and I would have last the $150 I put up as risk capital to make the trade.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Weekly Nadex Commentary - August 27-31

Will  Gold Hit $2,000 this Week?

Weekly Bias:

• Gold: Bullish
• EUR/USD: Bullish
• GBP/USD: Bullish
• USD/JPY: Bearish
• USD/CHF: Bearish

The markets closed below the T-Line last week, signalling a potential downturn in the market after an extended run-up. The US Stock indices are too flat right now to call a reversal or signal a continued run to the upside. My bias is neutral for now.

Gold, on the other hand, is continuing it's run toward $2,000. As of Monday morning, Gold was trading around $1,940, if it continues its upward trajectory, it's quite possible that the elusive $2,000 target could be hit this week.

Gold prices are traveling on a very steep uptrend, and showing no sign of reversal.

Last week, we had a bullish outlook on Gold, and I see no reason to buck the trend. My opinion on Gold is Bullish. 

When the markets opened Monday Morning, Gold was traveling around $1,966 before dipping around mid morning.

Using Nadex as my guide, I formulated the following opinion:

Gold prices will settle above $1,996.50 by Friday at 1:30pm ET when the Gold Markets close.

Click on Charts to Enlarge

So I clicked on the Weekly Binary Options contracts for Gold, and selected the > 1966.5 Strike Price. Here are the contract details:

Contract: BUY  Gold (Dec) >1966.5
Contract Expiry: Weekly: Expires on Friday, July 31 at 1:30PM ET
Number of Contracts: 5
Price: $43.8
Maximum Risk: $43.80 per contract traded = $219 (plus exchange fees)
Maximum Reward: $56.20 per contract traded = $281 (less exchange fees)

I will monitor this trade throughout the week, and publish trade results..

Trade Results

With over four days remaining in this trade, I have three options:

1. Take an Early Profit - If Gold prices continue to skyrocket upward, I can opt to exit the trade and lock in profits. Nothing wrong with that.
   
2. Exit Early to Minimize Losses - If the trade moves sharply against me, I can also exit the trade to minimize losses. I might consider this if my losses hover around 50 percent of capital risked (-$110)
   
3. Set it and Forget it - Let the trade ride until Expiration. - I'm okay with losing $219 if the trade goes against me. This uptrend looks good. I'm all in for a $281 reward. Come on, Gold at $2,000!

Update: Tuesday, July 28

In the overnight hours, Gold briefly touched $2,000, and then got "Monkeyhammered", according to a tweet from Zerohedge.

On Tuesday morning, Gold started to rebound. The question is whether Gold will re-test the 2,000 level or whether it will sell-off from current levels.

When I grabbed my screen shot this morning, this trade was down $110, right at where I was considering stopping-out. As I continue to update this post the trade is now down only $49.

There are over 3 days remaining in this trade. I'm going to stay in and see what happens for the meantime.

Tuesday, July 28 - Trade Exited for Modest Profit of $80

In a discussion with Stephen Bigalow about this trade, Steve pointed out that a long-legged Doji had formed in overbought territory, signalling a potential reversal in Gold.

This trade was already up $80, out of the maximum $281 reward possible. In this trade, I opted to exit the trade and lock in a sure profit.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

US Dollar Getting Hammered vs. the Swiss Franc

The US Dollar Index has been in free fall throughout the month of July.

The US Dollar Index, which had once hovered around $100 is down to $94.

Part of this is due to the perception that the strength of the US economy is weakening, in light of the Coronavirus outbreak in the US.

Technically, a "Death Cross" set up, where the 50 SMA, crossed the 200SMA to the downside, as illustrated in the chart below.

With this information in mind, let's take a look at the US Dollar vs. the Swiss Franc.

Click on Charts to Enlarge

Same deal. The dollar is getting hammered against the Swiss Franc. Price is traveling well below the 200 SMA, 50 SMA and the T-Line (8EMA). From now through the end of the week (tomorrow), this trend is showing no signs of reversal.

A Low-Risk Way to Trade the USD/CHF is with Nadex Binary Options

With Nadex Binary Options, you are you expressing your opinion about where a market will travel relative to a fixed price level (strike price), and also within a specified time frame.

Nadex Binary Options are traded in Contracts. Each contract is valued at $100. The marketplace of buyers and sellers determines what your risk and reward will be.

Example: Let's say the underlying market is at the same level of a strike price. You might be able to buy a contract for $50. That means someone on the other side of the trade is also willing to risk $50.

When your trade fills, $50 will be deducted and withheld from your trading account. If you hold that trade until expiration, then there are 2 possible outcomes:

1. You are right, and will collect $100, per contract traded, or
2. You are wrong, and your payout will be $0, so you forfeit the $50 that was withheld.

You are not married to the trade. You can exit any time you wish. You can exit to lock in profits or to minimize losses if the trade is moving against you.

In this case, I was trading my opinion that the USD/CHF would close below 0.9260 by 3:00 PM ET at the end of the day.

The order filled at around 11:15am. Here are the details:

Contract Details:

Contract: SELL  USD/CHF >.9260
Contract Expiry: Daily: Expires on Thursday, July 23 at 3PM ET.
Price: $50
Maximum Risk: $50 (plus exchange fees)
Maximum Reward: $50 (less exchange fees)

Trade Results

At this point, I have two options:

1. Take Profit - This trade is already up $35.00 in profit out of the maximum $50 profit per contract. That's not too bad. I could lock in a sure profit and call it a day.
2. Let it Ride - With 1 Hour and 47 minutes left until expiry, you could decide that the likelihood is slim that the market will reverse and take you out of the trade for a total loss. All it has to do is close anywhere below 0.9260 for you to receive the maximum profit of $50 per contract.

In today's trade, I'm going for Option #2. I'm going to bet that the downtrend continues.

UPDATE: Thursday at 3:00 PM ET. This Contract expired below .9260 yielding the maximum profit of $50 per contract traded.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Gold Continues its Upward Trajectory

In spite of the daily onslaught of morbid Covid news, the markets are showing incredible resilience.

Today, the US State Department ordered China to close its consulate in Houston. China is vowing retaliation.

Still, the markets are flat to slightly up.

Gold has been remarkably resilient over the past several years chugging steadily upward from $1,100 per share to a place where $2,000 is a distinct near-term possibility.

Traditionally, Gold has been viewed as a "safe haven", having an inverse relationship to the S&P 500. When the stock markets usually go down, then gold goes up. When stocks rally, gold goes down in price.

In the past year, that relationship has changed. Gold and the S&P 500 are now tracking with each other. In the chart below, you can see that both Gold and the S&P 500 took a dive during the February-April Covid selloff.

Since the selloff, both gold and the S&P 500 have tracked along the same upward trajectory.

Looking at the Daily Chart for Gold, the price is on a "Steady Eddie" upward trend, staying above both the T-Line (8EMA) and the 3EMA, as well as the 50 and 200 SMA.

There is no reason to think the trend won't end anytime in the short-term, unless gold closes below the T-Line.

If your bias is to the upside, you can to trade gold prices without exposing yourself to excessive risk is with Nadex Binary Options.

With Nadex binary Options, you are you expressing your opinion about where a market will travel relative to a fixed price level (strike price), and also within a specified time frame.

 Nadex Binary Options are traded in Contracts. Each contract is valued at $100. The marketplace of buyers and sellers determines what your risk and reward will be.

Example: Let's say the underlying market is at the same level of a strike price. You might be able to buy a contract for $50. That means someone on the other side of the trade is also willing to risk $50.

When your trade fills, $50 will be deducted and withheld from your trading account. If you hold that trade until expiration, then there are 2 possible outcomes:

1. You are right, and will collect $100, per contract traded, or
2. You are wrong, and your payout will be $0, so you forfeit the $50 that was withheld.

You are not married to the trade. You can exit any time you wish. You can exit to lock in profits or to minimize losses if the trade is moving against you.

In this case, I was trading my opinion that Gold would close above 1,840.50 by 1:30 ET Friday, when the Gold Pits close.

Click on Chart to Enlarge

On Monday afternoon, Gold was traveling around the 1840 strike price. I chose a Weekly Binary Option, expiring Friday at 1:30pm ET.

Contract Details:

Contract: Buy Gold (Aug) >1840.5
Contract Expiry: Weekly: Expires on Friday, July 24 at 1:30pm ET
Price: $50
Maximum Risk: $50 (plus exchange fees)
Maximum Reward: $50 (less exchange fees)

Trade Results

I could have opted to do nothing and let this trade expire for a highly probable maximum profit of $50. But in these volatile markets, I opted to exit the trade for a $42 profit.

In my mind, I cut most of the meat off of the bone, and locked in a sure profit. There are still 2 full days until expiration, and anything can happen. 

This was a very nice trade.

Try Nadex Today, Risk-Free

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Nadex Market Commentary Week of July 20-24

This week could be another interesting and volatile week in the markets.

It will be a strong week for earnings reports, especially in the tech sector. Last week, banks reported with results that were largely in-line with expectations.

Covid-19 continues to be a cause of concern as cases continue to explode, especially in the Southern United States. Florida is reporting that some hospitals are out of ICU beds, and the mayor of Los Angeles is considering further shut-downs.

Looking at the markets we like to cover in Nadex, the Euro is continuing to show signs of bullishness against the US Dollar, at least for the short-term. Price has formed a Fry Pan Bottom, and the market is continuing to churn upward above the T-Line (8 EMA) on the Daily Charts.

There is no reason not to stay bullish, unless the EUR/USD closes below the T-Line.

If your short-term bias on the EUR/USD is to the upside, then one way to trade your opinion is with Nadex "Knockout Trades". This allows you to trade your bullish sentiment on the EUR/USD with capped risk. You know exactly what your maximum loss will be before you trade.

Knockout trades have a week-long duration. They start on Monday Morning and expire on Friday. There is also a fixed "floor" and "ceiling" to knockout trades, which defines the maximum amount you can win or lose on the trade.

If you're bullish and price goes through the "ceiling" price level, then the trade is automatically closed for the maximum profit available. Conversely, if price goes through the "floor", then the trade is automatically stopped out for the maximum loss.

Here's a trade I took today (Monday, August 20)

I have a weekly bullish bias on the EUR/USD so here's what I did:

BUY EUR/USD 1.1370 - 1.1620  (250 pip or $250 depth., per contract traded)
Entry Price: 1.1442
Maximum Risk: $75, per contract traded
Maximum Reward: $175 per contract traded (less exchange fees)
Contract Expiry: Friday July 24 at 3pm

What does this all mean?

As long as price is moving above 1.1442, I'm making money. I can choose to exit this trade any time that I want. If it's Wednesday, and I'm up $75.00, then I can exit for $75.00.  Conversely, if the trade is moving against me and I'm down $50, I can also close the trade for a partial loss.

Update: Tuesday, July 21

Click on image to Enlarge Chart

1. EUR/USD Current Price is staying on the uptrend
2. Bought Contract at  1.1442
3. Current Price is 1.1459
4. Current Profit is $17.00 per contract traded (1 contract in this example)
5. Contract Duration: 3 days, 4 hours remaining until expiry.

I'm going to let this trade run. This could set up for a gain of 50+ pips.

Update: Trade Closed Tuesday Afternoon

This trade had a nice run-up today. In today's volatile markets, anything can happen, so I felt an 86 pip reward ($86) was well worth the $72 I put up as risk.

Conclusion

What I like about Nadex the most is that every trade has capped risk that is known in advance before you place your trade. That's huge in these days of extreme market volatility. It's impossible for a trade to run away from you. No margin calls.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

Market Commentary Week of July 13-17

The 2nd half of the year is now kicking off. Earnings season will be kicking in full-gear.

Will earnings surprise to the upside, or will they disappoint? Will the Fed continue propping up the economy buy buying huge quantities of stocks and corporate bonds? We'll see.

In the meantime, markets are at least showing the appearance of being resilient.

The Dow Jones Industrial average has recently been flat but just made a move through the 200-day SMA, and traveling above the T-Line suggesting that there may be more room for the DOW to move to the upside.

If you believe the markets will stay ABOVE the 200 SMA (26249) for the remainder of the week, then you can trade with Nadex and express your opinion while keeping your risk tightly capped.

One way to trade with Nadex is with a Weekly Binary Option. In this case, I chose the strike price nearest the 200 SMA.  That strike price is 26375. I placed a Limit GTC order for $50 per contract traded.

This simply means I'm putting up a maximum of $50 risk for a maximum $50 reward, per contract traded. When the order is executed, Nadex will withhold $50 per contract traded from my account

• If I buy 5 contracts, my maximum risk would be $250, and my maximum reward would be $250
• If I buy 10 contracts, my maximum risk would be $500 and my maximum reward would be $500.

Bear in mind, just because you place a weekly binary options trade doesn't mean you're married to it. You can exit the trade anytime you wish.

If you feel the market is moving against you, you can exit the trade for a partial loss. You can also exit the trade if you are comfortably in the green and want to lock in profits.

If you hold your contract(s) until expiration, then on Friday at 4:15 PM, only one thing will be true:

• You will be right, and you will collect $100, per contract traded, or
• You will be wrong, and your payout will be $0

There are many different ways to trade with Nadex, but all trades have one thing in common.
You always know your maximum risk before you place your trade. There are no surprises.

If you're curious about trading with Nadex, download their free demo here. Your account will be funded with $10,000 in play money and you can practice trading with defined risk.

You can fund a Nadex account for as little as $250. Nadex is available for traders in 41 countries.

It's Monday, July 13. This trade is currently open, and taking a little bit of late-day heat on a selloff. We'll revisit this trade later on in the Week

Uncertain Times Can Expose Volatility Trading Opportunities.

Global pandemic. Depression-level unemployment. Travel bans.

The Covid-19 virus is exploding across the United States, with over 50,000 new cases reported in a single day. Dr. Fauci warns that those numbers could double.

In spite of this terrible news, the stock markets have been remarkably resilient.

Granted, the stimulus of CARES Act funds and PPP loans are helping to keep the economy afloat. The Fed is stepping in and buying stocks and corporate bonds to further help stave off a market selloff. In spite of these measures, many wonder how long these relief efforts can prop up a fragile global economy.

Still, the S&P 500 has made an impressive recovery from the February/March selloff, which dipped as low as 2,200.

On Thursday, July 2 the monthly Nonfarm Payroll Report showed an increase of 4.8 million jobs against 3 million  jobs fore cast. This was largely due to employees returning back to work, led by the leisure and hospitality sectors. 

The major indices spiked on the monthly employment report but gave back much of their gains going into the long 4th of July holiday weekend.

What does this mean?

Stocks are edging up into overbought territory. Meanwhile, many states are re-imposing Covid-19 shutdown procedures. Texas, Florida and Arizona, among other states are shutting down bars, gyms, water parks and other businesses that pose a high risk of Covid-19 disease spread.

If there is a wave of bad economic news, it could trigger another downturn in the markets.

How can you trade a potential downturn?

You could trade volatility. The VIX Index, sometimes known as the "fear gauge" spikes upward whenever markets crash, and it comes back down to earth when markets rally and stabilize.

Notice the relationship of the VIX to the red 200-day moving average. Over the past year, it has held up strongly as support.

A good way to trade volatile is with Options. There are several Volatility Options available that mirror the VIX. These include:

• Velocity Shares Daily 2x VIX Short-Term ETN (TVIX)
• iPath S&P 500 VIX Short-Term Futures (VXX)
• ProShares Ultra VIX Short-Term Futures (UVXY)

On this Daily Chart of the VXX, look what happens almost every time the Stochastics (12,3,3) drop below 20. It signals that the VXX is Oversold and due for a move back to the upside.

For this move to happen, the markets will need to sell-off, since the markets and the VIX usually travel in opposite directions.

If you believe the VIX will move to the upside over the short-term, then you could BUY an Options CALL on any one of the instruments listed above.

Trading involves risk, and potential loss of capital. Always make sure to exercise proper risk management.