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.
