February 2, 2015 Nadex Trade of the Day - Trading the Germany 30 (DAX) Index in a Sideways Market

Sometimes when you have a strategy that has a high probability of success, you just have to trust that your trading plan will work most of the time. You also have to trust that the strategy won't work the minority of the time. Today was a day to trust the rules and let the trade ride.

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 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.

This is a very simple strategy that is remarkably consistent. Just be patient and watch the 7am 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 8am, after the 7am hourly candlestick has closed.

There were several economic news reports in this time frame today, so caution was warranted.

Nadex Chart - Click on Chart to Enlarge

Going into the 7am hour the Germany 30 Index was trading sideways, and well inside the 5 minute Ichimoku cloud. Other indicators (8EMA, 50SMA and Stochastics) were also pointing to a possibly bearish session. Four medium impact US economic reports (Personal Spending, PCE, Personal Earnings) were due to be released at 8:30, so caution was warranted.

7:00am: The Germany 30 (DAX) market opened at 10731.  The first 5-minute candlestick was bullish, followed by a couple of  bearish candlesticks. The market chopped sideways until 7:50, when the candlestick closed above the T-Line (8 EMA shown on chart). Convinced that the 7am hourly candlestick was going to close bullish, a pending/working order was placed to BUY at 10728, the first strike price below the opening price of 10731. Risk $50. reward $50. Another pending order (3 contracts) was placed at 10708,  risking $80 to make $20 for this deep into the money proposition. Now it was just time to wait for the orders to fill.

8:00am: Sure enough, the 7am hourly candlestick closed bullish at 10748. The market traded down slightly, but was still range-bound between the 10728 and 10748 strike prices. 

8:30am: The four US economic reports came in mixed/bearish. Not enough to shock the markets, but just enough to drop and fill the pending orders that were placed at 7:50 The 10728 order filled, and just one of my 3 contracts at 10708 filled. The market did not stay down long enough to fill the other 2 contracts. The DAX spiked upward sharply at 8:45, making both contracts good. It would have been a wise move to exit both positions early and take profit, but today the decision was made to let both contracts ride to expiration. Then the market dove at 8:50, before settling in the money for a full profit at expiration.

Trade results:
BUY at >10728: $50 profit, less $1.80 in exchange fees
BUY at >10708: $20 profit, less $1.80 in exchange fees

Today's trade was actually a beautiful day for the 7am-9am  DAX Strategy. The 7am hourly candlestick opened at 10731, and the trade closed at 10732 at the 9am expiration. If you were patient and followed the ruled of this strategy to the letter, then you would have bought at 10728 and expired in the money for a full profit. If you sold the market at 10748, your trade would have also expired in the money.

Free Nadex Education Reminder:

• Monday, Feb. 2 Basics of Nadex Spreads 6pm-7pm CST  Register Here
• For the full schedule of free February Nadex webinars, click here.

For more about the rules of the Germany 30 (DAX) Strategy with Nadex, 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

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.

Managing Your Money with Nadex Binary Options

If you trade Nadex binary options, then you know exactly what your maximum risk and maximum reward is before you place your trade. You know that a trade can't run away from you and that you can't get "stopped-out" by market spikes as long as your trade is active.

When you trade with Nadex or any other financial instrument, you must balance money management, risk/reward, a proven trading strategy, and the right trading mindset in order to achieve consistency. In this blog post, a simple plan for money management will be discussed.

The 5 Percent (or less) Rule

Many new traders get excited about the possibilities of Nadex, but don't know how to properly fund their trading account. Here's a simple rule: Never risk more than 5 percent of your account balance at any given time. If you are entering a trade risking $50 to make $50, then your account balance should be $1,000 since $50 is 5 percent of that balance. If you routinely risk $80 to make $20 on much higher probability trades, then a $1,600 account balance is preferable. Here is why the 5 Percent Rule can be helpful for managing your Nadex trading account:

• Risking 5 percent (or less) of your account balance on a high probability trade will greatly improve your trading psychology. If you have 5 percent (or less) of your small trading account at risk, you can trade with better confidence. You have discovered and personally tested a strategy with better than a 70% probability of success. You know it's likely that 7 out of  10 of your trades will be successful. If you risk less than 5 percent of your account balance on a high probability trade, then you are in control of your emotions.
• Risking more than 5 percent of your account balance can negatively affect your trading psychology. If you have a $400 account balance and you place a trade risking $80 to make $20, then you have 20 percent of your account balance at risk for a 5 percent return. Even though it's a high probability trade, there is still a 20 percent chance that the trade will expire out of the money. So you hunch forward, babysit the trade and you are quick to exit if the trade looks like it's turning against you. You feel emotionally drained even if your trade expires in the money. If you placed the same trade with a $1,600 account balance, it's likely that you would be in a relaxed mindset making the trade.
• If you don't have the funds to meet the 5 percent rule, then practice in demo and make gradual deposits into your account until it is adequately funded. The first couple of months trading Nadex should be heavily devoted to research and education. If you have just funded your Nadex account with $100, it might be a good idea to invest in self-education and test a high probability strategy in demo at least 40 times. For a checklist on how to do this, click here. In the meantime, if you have decided that your strategy requires $50 risk per trade, then you may want to raise another $900 before you start trading live. If your chosen strategy requires an $80 per contract risk, then try to raise more money.

Trading is an emotional business. and money management is critical to trading consistency. Even the best trading strategies will lose from time to time, and disciplined traders know how to accept losses. They know that their trading strategy is solid and their winning trades will far outweigh their losers. They never expose their accounts to unnecessary risks, and they can easily weather short-term setbacks. And the key elements to trading that they share in common are:

• They have learned how to manage money on every trade
• They have a proven high probability trading strategy that they can do in their sleep
• They know how to manage risk/reward vs. probability of success
• Their accounts are adequately funded to deploy their strategy

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.

Week 3 Diary - Five Rules I've Learned About Trading the Markets

By Cam White
Note: Please make sure to read the Disclaimer at the bottom of this blog

As I enter my third week of trading the markets, I've discovered that I have some pretty decent trading instincts, but there is a wealth of information I still need to learn. My plans are to treat trading the markets like a business, and not as a hobby. Here are the top 5 things I have learned thus far:

Rule #1 - Understanding My Appetite for Risk

Trading the markets must be only done with risk capital. Simply defined, risk capital is money you can afford to lose without impacting your lifestyle. It's putting that little bit of extra money outside of savings and retirement funds to work for you. Risk capital is different for everyone, so for the purposes of this blog, I'm going to assume I had a garage sale, found some money in an old, dormant account, and raised $1,000.

Now, what do I do with this risk capital? If I roll the dice and invest it all on one trade, the stress would make my brain explode. If I invested half of that amount, my heart would be racing. But if I trade 5-10 percent of my account, I am relatively calm about the decision. If I have a successful trade, I have grown my little account incrementally. If I lose less than 5-10 percent of my account on a trade, it's disappointing but not emotionally devastating. The bottom line is that I need to adjust my appetite for risk on any trade so I can accept gains and losses without getting emotional one way or the other.

Rule #2 - Invest in Education

I learn by doing research, reading books and through osmosis. Almost every weekday morning, I tune into the a free online Trading Room hosted by Infinity Futures. At 7am (Central Time) Ray Burchett talks about the overnight markets, economic news, and his views on the current state of the markets, focusing primarily on the S&P 500 futures markets. From 8-11, Rollie White trades the markets live with his own money, focusing on 6 key markets he likes to trade. Together, there is over 35 years of trading experience between these 2 speakers. As I tune into the Trading Room, I learn from their experience, and I always pick up new and useful information that I can test and apply to my trading plan. Both Rollie and Ray also take questions from listeners and are happy to answer them. While I am listening to the trading room, I scan the morning news on the markets from Investing.com, Bloomberg, CNBC and a couple of other sites.

I also learn by attending webinars. Part of my new job with TradingPub is to help schedule speakers for free weekly webinars hosted by the site. These speakers talk to every aspect of trading the markets, whether it's stocks, bonds, futures, options, Forex or other trading instruments. As I sit in  on these webinars, I take notes and learn from every webinar. There are so many different approaches and strategies for trading the markets, and every successful strategy has its merits. Finally, I use the internet to research topics I am fuzzy about, and I am reading "The Complete Guide to Day Trading", by Markus Heitkoetter which is an excellent primer for the newbie trader.

Rule #3 -  Always Test Strategies in Demo Mode. Never Try a New Idea in a Live Account

If trading was easy, everyone would do it and make money hand over fist. From my experience thus far, the most important thing for a newbie trader to learn is when a market is truly trending upward, downward or sideways. Once I have identified the direction of the market, then I need to develop tested trading strategies for each scenario. Practicing on a simulator allows me to test market entry and exit strategies, and gives me an opportunity to chart my results without risking real money. I am learning not go live with a trading strategy until I have demonstrated a consistent track record of success. One expert recommends testing a strategy no less than 40 times before going live. I think that's pretty sage advice.

Almost every trading platform allows you to trade in demo mode. From my previous blog posts, I have mentioned that I have started my trading journey on Nadex, primarily because of it's low entry cost. Nadex has an extensive library of free educational webinars for account holders, plus a demo account funded with $25,000 in play money. I have learned only to make tested trading strategies in my live account. I have made a few mistakes trading untested theories live, and paid the price. Lesson learned.

Rule #4 - Keep a Journal of Every Trade

To me, it is critically important to  log every trade I make, both in demo mode and in my live trading account. I keep a spreadsheet and record the following information:

- Date of the trade

- Time of day I executed the trade. Time of day I exited the trade.
- Which underlying  market did I trade?  Indices, commodities, currencies?
- How many contracts did I trade?

- How much money did I have at risk? Was it in line with my risk strategy?
- Profit or loss? Did I make the right decision, stay in too long, or did I exit too early?
- What was my strategy on that trade? Why was my trade successful or not?

Reviewing my journal is a key part of my learning process. While remembering good trades is gratifying, I'm especially focused on my losses. What did I do wrong? When I go back and review what happened, I can usually spot a rookie mistake. Maybe the market really wasn't moving in the direction I thought it was. Maybe there just wasn't enough volume in the market, and I got whipsawed by a fast market reversal. Losing happens to every trader, and every loss can become a teachable moment.

Rule #5 - Take Emotions Out of Trading and Treat it Like a Business

One of the most common mistakes a newbie trader can make is revenge trading. I thought I had the perfect trade and lost. I immediately sought revenge and placed a trade in attempt to win my money back. That's an emotional trade, and it has no place in my business plan. Other mistakes include making trades based on tips from experts. Even the experts lose, and that's a trade rooted in emotional insecurity. Finally, some days aren't good trading days. If the markets aren't behaving to my plan, then I need to learn to stay in demo mode or just walk away from trading that day.

Going back to Rule #1, if I am completely comfortable with the money I have at risk, then trading should be a non-emotional experience. It's a simple business rule of applying money you are comfortable with risking to a tested strategy with a reasonably high probability of success.

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.