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.
