The Inquisitive Trader: FTSE 100

Showing posts with label FTSE 100. Show all posts

Thursday, August 13, 2015

A Low Risk, High-Reward Twist on the DAX "Strudel" Strategy with Nadex

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. I call it the "Strudel" strategy, because it's a delicious breakfast trade. This strategy was based on the observation from Tom Busby, a veteran Futures trader who observed that the 7am EDT hourly candlestick of the Germany 30 (DAX) Index is a pivot point that determines the direction of that market for the following hour a great majority of the time.

The rules for the strategy are remarkably simple:

Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
Once you are 100% convinced that the 7am EDT hourly candlestick will be BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
Once you are 100% convinced that the 7am EDT hourly candlestick will BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of hourly candlestick.
The safest way to execute this strategy is to wait for the 7am hourly candlestick to completely close before you make a decision to BUY or SELL. Markets can get whippy, and one of the most common mistakes made with this strategy is to pull the trigger too early on the trade. Patience is key.

This strategy has been remarkably consistent. Over the past 60+ trading days, this pattern has repeated itself about 90 percent of the time. Just be patient and watch the 7am hourly candlestick develop. Once it's confirmed bullish, then buy. If it's confirmed bearish, then sell. Again, if you want to be "super-safe", don't make a trading decision until 8am, after the 7am hourly candlestick has closed.
Sometimes the 7am hourly candlestick develops very bullish or bearish in a hurry. When that happens, it may be very difficult to get a trade that satisfies your risk/reward criteria. Today was an example of such a trade.

5 Minute Nadex Chart on the Germany 30 (DAX) Index. Click on Chart to Enlarge.

Looking at the chart above, the market had been on an extended downtrend, opening at 11422 at 7:00am EDT. The market ground it's way upward for the first 15 minutes. Then it reversed and started to dive. The 7am hourly candlestick closed at 11405 - BEARISH.

Under the trading rules of this strategy, that would trigger a SELL from 11429, the first Nadex strike price ABOVE the 7am hourly candlestick. But at 8:00am the market was 25 ticks away from the strike price and continuing to move South. To get an order filled, it would have required me to risk $85-$90 per contract. A little bit too expensive for me. The MACD was starting to cross over from bullish to bearish, and I felt the downtrend would continue, so I placed two orders:

The first order was a working order that satisfied the rules of the trade. I sold from the first strike price ABOVE the 7am hourly closed candle, which was 11429. The market looked like it was going to be on a continuation down trend, so I placed another live order to SELL at 11369. For this order to settle in-the-money (ITM) for full profit, the market would need to drop another 36 ticks.

The beauty of out-of-the-money (OTM) trades is that your capital risked is far less than your potential reward. But OTM trades also become valuable when the market starts to move toward your strike price. I had a $30 profit target per contract with my pending order. I also decided on a $30 profit target for my live order.

It looked like the market wasn't going to cooperate with my OTM trade, but I only had $8 risked. Then at 8:55, just 5 minutes before the trade was due to expire, the market dove. My trade was now worth $31 in profit, so I took profit and closed out the trade. Mission accomplished. I hit my profit target.

The market expired below 11369. If I had decided not to exit the trade, I could have picked up $92 instead of $31. But that wasn't a certainty. As sharply as the market dropped, it could have easily retraced and settled above 11369 at the 9:00am expiration.

The first trade never filled, so there was no trade on my SELL at 11429 with a $30 profit target. Instead I managed to pick up the $30 profit risking only $8 instead of $70. It was a slightly different twist on my normal strategy, but yielded the same results.

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Video: Breakfast, Lunch & Dinner Trades with Nadex
By Cam White, TradingPub

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.

Tuesday, July 21, 2015

Trading the DAX "Strudel" Strategy with Nadex Spreads

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. I call it the "Strudel" strategy, because it's a delicious breakfast trade. This strategy was based on the observation from Tom Busby, a veteran Futures trader who 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 following hour a great majority of the time.

The rules for the strategy are remarkably simple:

Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
If the 7am EST hourly candlestick is BULLISH, then BUY a Nadex Binary Options contract(s) at the first Nadex strike price available BELOW the opening price of hourly candlestick.
If the 7am EST hourly candlestick is BEARISH, then SELL a Nadex Binary Options conrtact(s) at the first Nadex strike price available ABOVE the opening price of hourly candlestick.

I have traded this strategy exclusively with Nadex Binary Options since August 2014. But recently, I have taken a closer look at trading this strategy with Nadex Spreads.

Nadex Spreads resemble traditional Futures and Forex trades, with a few differences that I consider to be advantages:

Your risk is defined. You know exactly what your maximum loss or gain is per trade.
You cannot get stopped-out as long as your trade is active. If the market moves against you briefly, your trade is still alive, unless you decide to exit the trade.
Your maximum risk is your margin. If you want to equalize a Nadex trade with a Standard Lot Forex contract, you don't have to put up thousands to cover the margin requirements. In today's trade, 10 Nadex contracts were sold, making each pip worth $10, just like Forex. Instead of putting up over $2,000 in margin requirement, only $700 was withheld to make a maximum of $1,300.
No broker commissions, no middlemen. With Nadex, your orders are placed directly on the exchange, and there's a $.90 cent (per side) exchange fee charged per contract.

Today's "Strudel" Trade with Nadex Spreads

4 Hour Nadex Chart. Click on Chart to Enlarge

Nadex spreads put a "box" around a trade. The floor and the ceiling of the box represent the maximum price range of the box. The left wall is the start of the trade, and the right wall is the expiration time for the trade.

To trade a Nadex spread, you simply follow these steps:

Determine the direction you think the market will be going
Select a strike price of your choosing
If you SELL a spread, the number of pips between your strike price and the CEILING of the box will be your maximum risk. The number of pips between your strike price and the FLOOR is your maximum profit.
If you BUY a spread, the number of pips between your strike price and the FLOOR of the box will be your maximum risk. The number of pips between your strike price and the CEILING is your maximum profit.

I haven't done much with Nadex spreads in the past, but after today's trade, I plan to devote more time to practicing with them.

I chose a 200 point spread and wanted to trade 10 contracts to get the same leverage as a Standard Lot Forex trade, where 1 point = $10. The market was on a downtrend, so I decided to SELL during the 7am EDT Hour, consistent with the strategy I usually use when I trade the "Strudel" Strategy with Binary Options. If the 7am hourly candlestick is developing Bullish, then BUY. If it is developing Bearish, then SELL.

When I entered the trade to SELL after Bearish confirmation, the Nadex Spread I selected offered $700 maximum risk, for $1,300 maximum profit. Before placing the trade, I was prepared to take a $150 loss if the trade moved against me, and I had a $200 profit target. Here's how the trade played out:

5 minute Nadex Chart. Click on Chart to Enlarge.

The trade was placed at 7:40am EDT, and the market started grinding downward. Within 30 minutes, I had picked up about 15 pips, or $150. I was well on my way to my $200 profit goal. At 8:30, the market moved from a 20 pip gain back to a 15 pip gain. Was this a temporary retracement, or was it a reversal? At 8:40, I exited the trade for a 22 pip gain, or $220.

That's the good news. I had a plan and I stuck to it. I reached my profit goal and exited the trade.

The bad news is the market kept diving after I exited with a vengeance, all the way through the floor of the spread box. If I would have let the trade run, I could have exited at 10:50am for the maximum $1,300 reward. I left $1,100 on the table. And that will buy a lot of Strudels.

Conclusion

I have a lot of work to do with Nadex Spreads, but they have definitely gotten my attention. I know it's a very common trading adage to cut your losses short and let your winners run. Today, I stubbornly kept to a predetermined trading plan, and never gave the trade the opportunity to run. I'm not beating myself up about this, but it will be interesting to see how I adapt my trading plan to take advantage of these opportunities in the future.

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Video: Breakfast, Lunch & Dinner Trades with Nadex
By Cam White, TradingPub

The Purpose of this Blog

Disclaimer

Tuesday, July 14, 2015

Patience Pays Off with the Nadex "Strudel" Strategy on the DAX Index

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. I call it the "Strudel" strategy, because it's a delicious breakfast trade. This strategy was based on the observation from Tom Busby, a veteran Futures trader who 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 following hour a great majority of the time.

The rules for the strategy are remarkably simple:

Select the 7am-9am EST Nadex time period for the Germany 30 (DAX) Index.
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.

But a key word with this strategy is patience. One of the biggest mistakes traders make with this strategy is to jump the gun and pull the trigger too early on this strategy. Let's take a look at this 15-minute Nadex chart:

15 minute Nadex Chart on the Germany 30 (DAX) Index. Click on Chart to Enlarge.

The first 2 15-minute candles at the 7am open are bullish. The market had been riding a downtrend, but appeared to be reversing. It was riding above the 8 EMA and the MACD just crossed over from bearish to bullish. For many, it would be easy to assume that the hourly candlestick would close bullish, triggering a BUY.
But now let's take a look how the first hour of trading played out on the hourly charts:

Hourly Nadex Chart. Click to Enlarge

On the hourly charts, you can see that the market was on a steep downtrend. The bullish move on the 15-minute charts above was simply a retracement back to the 8 EMA, before the market continued it's downward path. The hourly candlestick closed BEARISH, triggering a SELL from the first Nadex strike price ABOVE the opening price.

But a little more patience was warranted. At 8:30am, several economic news reports (Retail Sales) were due to be released. The decision was made to sit on the sidelines and wait for the reports to be released befor placing my SELL order. At 8:30, the econ news was released:

Econ News courtesy of Investing.com

As you can see the news was bearish, and the market dove. I quickly placed a SELL order, risking $80.75 to make $19.25. That may not sound like much reward, but I felt highly confident that this trade would expire successfully with little stress. And it did. Here's how the trade played out:

5 Minute Nadex Charts. Click on Chart to Enlarge

On this 5 minute chart, you can see how the market was bullish in the first half hour, before diving and turning bearish. At 8:30, you can see how the economic news affected the market. The SELL order was a high risk, low reward trade, but it was never threatened. It was a quick $19.25 per contract trade, less $1.80 in exchange fees.

And that will buy a Strudel.

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Video: Breakfast, Lunch & Dinner Trades with Nadex
By Cam White, TradingPub

The Purpose of this Blog

Disclaimer

Thursday, July 9, 2015

Trusting the Probabilities on a Nadex FTSE 100 Strategy

Today's Nadex trade for the FTSE 100 Index required trusting a key indicator along with historical probabilities of success for a strategy that has been backtested for several months. The FTSE100 is an index of the top 100 companies traded on the London Exchange.

Over the past 62 trading days, the FTSE 100 has displayed a pattern between 9am-11am EDT that has repeated itself 47 out of 62 times, or slightly better than 75 percent of the time. If you followed the rules of this strategy, and got in on every trade, then your trade would have expired successfully 47 out of 62 times.

Today, it looked like an exception to the rule was coming into play. The setup looked dangerous, and the trade required patience for the right entry.

But first, here are the rules for the 9am-11am FTSE 100 "Footsie" Strategy:

Click on Nadex Chart to Enlarge

Notice the 9am hourly candlesticks above. Can you see that the following 10am candlestick never challenges the opening price of the 9am candlestick? In fact, the 10am candlestick tends to continue in the same direction that was established by the 9am candlestick. To back test this, simply pull up the hourly charts of the FTSE 100 on Investing.com and go back 60 days. Compare the 9am EDT hourly candlestick to the 10am hourly candlestick. You will see how frequently this pattern repeats itself.

The same phenomenon occurs with the 7am-9am German "Strudel" strategy that I have written about extensively. Complete rules for the "Strudel" strategy are included in the free eBook from TradingPub, entitled "Trading Made Simple: Strategies that Risk $100 or Less".

The rules for this new strategy are very simple to execute:

Select the 9am-11am EST Nadex time period for the FTSE 100 Index.
If the 9am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of the 9am hourly candlestick.
If the 9am EST hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of the 9am hourly candlestick.

This strategy has been very consistent over the past 3 months. Just be patient and watch the 9am hourly candlestick develop. Once it's confirmed bullish, then buy. If it's confirmed bearish, then sell. If you want to be "super-safe", don't make a trading decision until 10am, after the 9am hourly candlestick has closed.

Trading this strategy today required patience and caution, as the chart below illustrates:

Nadex Hourly Chart of the FTSE 100 Index. Click on Chart to Enlarge

The FTSE 100 Index had been riding a very steep uptrend for 7 consecutive hours going into the 9am hour. The 9am hourly candlestick was also developing bullish, but it was also gapping significantly away from the 8 EMA indicator. When the market gaps away from the 8 EMA (also known as the "T-Line") it almost always has to come back. It's like a rubber band. You can pull the market away from the 8 EMA, but it always snaps back.

With a bullish 9am hourly candle, it would normally automatically trigger a BUY at the first strike price below the 9am open. But I didn't like how far the market had gapped away from the 8EMA, and I sensed it would snap back with a vengeance. So I decided to sit on the sidelines and wait to see what the market would do.

Sure enough, the market snapped back with a vengeance. It blew through the strike price, and kept going all of the way down until it touched the 8 EMA.

So now I had a decision to make. Will the market reverse direction and head back north, and settle above the 1st strike price below the 9am open? With 40 minute left in the trade, it sure didn't look like it. But I reminded myself that this strategy has a 75% success rate, and a reversal looked like it was imminent. If I placed that trade, it was an Out-of-the-money trade, risking only $30 to make $70 per contract. Low risk, high reward. I pulled the trigger and went for it. Here's how the trade played out.

5 Minute Nadex Chart. Click on Chart to Enlarge

From 10am-10:30, the market kept going downward until it touched the 8EMA on the Hourly charts. Then it abruptly reversed and headed straight up, expiring for a full profit of $70 per contract, less $1.80 in exchange fees.

Conclusion:

In hindsight, this was a trade I probably should have passed on. It wound up working out exactly as I had predicted, but it could have easily lost. The market had to dive sharply toward the 8 EMA, and then bounce back up. I also had to have confidence in the recent historical probability of success. Those were two variables I had to trust before I pulled the trigger. But since I was only risking $30 per contract for a potential $70 reward, I wasn't too nervous.

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Tuesday, July 7, 2015

A Low Risk, High Reward Trade on the S&P 500 Morning "V" Pattern with Nadex

Morning "V" Pattern on the S&P 500

By Cam White, TradingPub

Out of the Money (OTM) trades with Nadex offer the opportunity to make significant profits on very little money risked. Since the probability of OTM trades expiring successfully is low, it is important to have a strategy that predicts a significant breakout or a reversal in the markets.

Today, the S&P 500 futures dove over 27 points between the 9:30 EDT Opening Bell and 11:30 EDT on worries over Greece, China and a broadening US Trade Deficit. Would the market bounce off support, or continue its free fall?

I looked at the the US 500 market on the daily charts, 4-Hour charts and smaller time frames. It looked like the market would find support at 2040. If support held, I was expecting a bounce off support. The MACD was showing that a potential reversal was imminent on multiple time frames. It was time to be patient and wait for a reversal to develop.

4 Hour Nadex Charts of the US 500 Index. Click on Chart to Enlarge.

The area around 2040 had been tested several times over the past few days.It was time to see if it would hold again. I switched to the 5 minute and 1-minute charts around 11:30 looking for signs of a reversal. After the market started to reverse on the smaller time frames, the MACD showed a reversal on the 15 minute charts.

That was my trigger to BUY on the reversal. Now the question was where would my strike price be? I could place an In-The-Money (ITM) trade below 2040, risking $70 to make $30. I could also place an At-The-Money trade (ATM) at 2040, risking $50 to make $50.

But I didn't entirely trust the market, so I opted to place an Out-of-the-Money (OTM) risking $20 to make $80 per contract. Psychologically, I like placing trades like this when the markets are acting crazy. I have very little money risked, for a potentially large return. But OTM trades need a good trigger, like a reversal, a strong continuation move, or a news event to accelerate the movement of the market.

Here's how today's Morning "V" trade played out:

15 Minute Nadex Chart. Click on Chart to Enlarge

Just before 11:30am EDT, the Market showed signs of reversal on the smaller time frames. The 15 minute Charts were showing a bullish crossover. Stochastics were on the rise. Now it was time to find a strike price that gave me the OTM risk/reward I was looking for. I bought 5 contracts to BUY the US 500 Index at 2050, risking $20 to make $80 per contract. Within one hour, the market climbed up and through the 2050 strike price. At that time, I was already up $100, and I could have exited the trade for a 1:1 risk/reward ratio.

Now I had a decision to make: Do I cash out and take a $100 sure profit, or should I let the trade continue and collect more profits? All indicators were still bullish, so I switched to a smaller time frame, and was prepared to exit on a hard reversal. I felt that the 2054 area might act like resistance, so I was prepared to exit at that price level. At 2054, the market briefly started to show signs of reversal.

I cashed out at around 2054 for a gross profit of $211.25, less $9.00 in exchange fees. Here are the transaction details:

I bought 5 contracts, risking a maximum of $100 to make a maximum of $400. As crazy as markets were behaving, I was quite happy exiting the trade early for a profit of over $200. If I had allowed the contract to expire at 4:15, it would have settled for the full $400 profit. But that was by no means certain when I chose to exit.

Conclusion:

Finding OTM trading opportunities with Nadex offers low risk for potentially high reward. These trades can be really fun when they work. Today's trade counted on a bounce off support, and the formation of a "V" pattern. If that didn't happen, I would have exited the trade quickly to minimize losses.

In the free eBook "Trading Made Simple - Strategies that Risk less than $100", you will find 11 strategies for trading Nadex from some of the best Nadex educators in the market. It's a free eBook, courtesy of TradingPub.

Important Note: OTM strategies only work if the markets are poised for a strong reversal or breakout. If a reversal or breakout doesn't happen, you will likely lose most or all of your capital risked. Fortunately, in this case. $20 per contract was a maximum risk worth taking.

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Breakfast, Lunch and Dinner Trades with Nadex
Cam White, TradingPub