The Inquisitive Trader: Options

Showing posts with label Options. Show all posts

Thursday, July 16, 2015

The Evening EUR/JPY "Sausage & Sushi" Trading Strategy with Nadex

If your work schedule doesn't permit you to trade during normal working hours, here's a trading strategy you can use in the comfort of your home around the dinner hour. For the past several months, I've been testing an evening trade with the EUR/JPY that has been very promising if conditions are right. This strategy for trading Nadex Binary Options came from Krystal Comber, CEO and founder of SlickTrade.net.

The working name used for the strategy was the "8pm-11pm EST EUR/JPY Asian Session" strategy. But that's a mouthful to write and it's boring. After testing this strategy with a group of fellow Nadex traders, we decided to rename it to the "Sausage & Sushi" trade.

Quite often, a predictable pattern happens with the EUR/JPY. If you can draw support and resistance lines,this strategy can greatly enhance your trading consistency.

The rules for trading the "Sausage & Sushi" Strategy are quite simple:

Log on to Nadex, and select the EUR/JPY currency pair with the "Daily 11pm" expiry.
At 8:00pm EST, draw horizontal lines at the highest price (resistance) and the lowest price (support) between 6-pm-8pm on the 15-minute chart for the EUR/JPY. Draw your support and resistance lines on regular candle bodies, and not the wicks. Use regular candlesticks, and not Heiken-Ashi candlesticks. I trade this strategy on Nadex charts.
Be aware of any economic news occurring on the EUR or JPY from 6pm – 11pm EST. Refer to Investing.com or Forex Factory to view economic news.
For a SELL – After 8pm, if a candlestick closes below the 6pm-8pm support line, then SELL on the closest strike price at or above the support line. You can place a market order if you want your order filled immediately, or you can place a working/limit order if you want to adjust your risk/reward.
For a BUY – After 8pm EST, if a candlestick closes above the 6pm-8pm resistance line, then BUY at the closest strike price available at or below the resistance line. You can place a market order if you want your order filled immediately, or you can place a working/limit order if you want to adjust your risk/reward.
That’s it! Price is normally tested heavily between 9pm – 10pm EST –You may wish to walk away during this point and come back around 10pm -10:15pm EST.
Always pay attention to the trend direction and news. If the market is sideways and staying within the high and low range you may want to avoid taking the trade. Also if the spread between 6-8pm support and resistance is very skinny, it's best to stay away from this trade.

Last night's "Sausage & Sushi" trade (July 15, 2015) played out very nicely:

15 Minute Nadex Chart. Click on Chart to Enlarge.

6:00pm - 8:00pm EST: The EUR/JPY established RESISTANCE at 135.84 and SUPPORT at 135.48. A nice 36 pip spread. Support and resistance lines for the 6-8pm time period were plotted on the 15-minute chart at these levels.

8:00pm - 11pm EST: Within the first 30-minutes after 8pm, the EUR/JPY broke through the support line, gapping slightly below the T-Line (8EMA). Using the rules of this strategy, this triggered a pending/working SELL order from the nearest NADEX strike price above the support line (135.60).

The following order was placed
Trade Details:

Contract: EUR/JPY >135.600 (11PM)
Expiration: Wed Jul 15 23:00:00 EST 2015
Direction: SELL
Quantity: 1
Price: $40.00

1 contract was sold, with a maximum risk of $60 and a maximum reward of $40.

Once the order filled, it ground it's way downward and the trade was looking good. At 9:30, the EUR/JPY spiked downward sharply. I had a decision to make it. With 1:15 minutes left in the trade, I was maxxed-out at $34 profit. Should I wait until 11pm to collect $40, or should I cash out early at $34 and take a sure thing?

I elected to cash out early and get a good night's sleep. I took the $34 profit, less $1.80 in exchange fees. The trade ultimately expired in the money at 11pm for full profit.

After several months of trading this strategy, I have found that it can be very consistent if I like the setup. A sincere thanks to Krystal Comber for sharing this strategy. If you can draw support and resistance lines, you can trade the EUR/JPY "Sausage & Sushi" trade tonight!

About Krystal Comber:

Krystal is the founder of SlickTrade.net SlickTrade provides live trading rooms, signals and setups for Nadex, IG Group and Forex traders. Krystal provides the following services:

Video tutorials for trading with Nadex
Winning strategies with detailed instructions
ThinkorSwim (TOS) workspace setups and indicators
Live trade signals
A private Facebook group and chat group
A personalized online trading journal that helps you track your trading activity
Live support

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Watch Krystal Comber Explain the "Sausage & Sushi" Trade:

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 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

The Purpose of this Blog

Disclaimer

Wednesday, June 24, 2015

A Nadex After Breakfast Trade with the FTSE 100

Pour some tea and enjoy a scone. Here's a trade that may have some promise on the FTSE 100 Index. The FTSE100 is an index of the top 100 companies traded on the London Exchange.

Yesterday, I was browsing through the Nadex trading platform, and I decided to take a look at some markets that I rarely trade. I pulled up the FTSE 100 index, and started to look at the historical performance of that index on multiple time frames to see if any patterns emerged.

When I switched to the hourly charts, something jumped out at me. It appeared that the 9am EDT hourly candlestick controlled the 10am EDT hourly candlestick with a high degree of frequency.

Here's what I saw:

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. I back-tested the hourly charts on Nadex for 20 trading days, and the same pattern repeated itself for 16 out of 20 days. Over the past 2 weeks this pattern repeated itself 80 percent of the time.

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 is a very simple strategy that looks like it can be fairly consistent. 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.

Since this is the first time I have traded on this observation, I elected to trade in demo, and here is how the traded played out:

Click on chart to enlarge

9:00am - The 9am hourly candlestick opened at 6791.000, and briefly went down before driving back upward. The 9am hourly candlestick closed BULLISH at 6800.433. This triggered a BUY at 6789, the first strike price BELOW the 9am hourly opening price. At 9:45 I was convinced the hourly candlestick would close bullish, and I placed the following trade in my demo account:

When I back-tested this strategy, it had an 80% probability of being successful, so I wasn't overly concerned with risking a maximum of $70 per contract.

10:00am - The 9am hourly candlestick closed BULLISH at 6800.433. Today the market kept grinding upward before ultimately expiring at 6805.133. Very little stress in this trade.

Trade Results:

Win: BUY at >6789 - 5 contracts x $30 profit, less $9.00 in exchange fees = $141.00

Conclusion:

This is a new trading observation, and it needs further back-testing. I have only looked at 20 trading days, but need to go back further to see if this pattern holds up to the test of time.

Try this Strategy Out for Yourself. Download a 2 Week Nadex Demo.
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Friday, June 19, 2015

An After Dinner Trade on the Nikkei 225 with Nadex

If you are busy working during the daytime, and can't watch the markets, here is a trading strategy that could yield consistent trading results after dinner.

Early yesterday evening, I was browsing through the Nadex trading platform, and I decided to take a look at some markets that I rarely trade. I pulled up the Japan 225 (Nikkei) index, and started to look at the historical performance of that index on multiple time frames to see if any patterns emerged.

When I switched to the hourly charts, something jumped out at me. It appeared that the 8pm EDT hourly candlestick controlled the 9pm EDT candlestick with a high degree of frequency.

Here's what I saw:

Click on Chart to Enlarge

Notice the 8pm hourly candlesticks above. Can you see that the following 9pm candlestick never challenges the opening price of the 8pm candlestick? In fact, the 9pm candlestick tends to continue in the same direction that was established by the 8pm candlestick. I back-tested the hourly charts on Nadex, and the same pattern repeated itself for 10 consecutive trading days. Then I switched to the Nikkei feed on Investing.com and continued back-testing through mid-April. The pattern held about 85-90 percent of the time.

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 8pm-10pm EST Nadex time period for the Japan 225 (Nikkei) Index.
If the 8pm EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
If the 8pm 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 looks like it can be remarkably consistent. Just be patient and watch the 8pm 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 9pm, after the 8pm hourly candlestick has closed.

Since this is the first time I have traded on this observation, I elected to trade in demo, and here is how the traded played out:

Click on the chart to Enlarge

8:00pm - The 8pm hourly candlestick opened at 20114.667, and drove downward for 30 minutes. Convinced that the market was going to continue on its bearish path, a pending/working order was placed to SELL from the first strike price available ABOVE the 8pm opening price. 2 trades were placed:

These were not a market orders. For both of them to fill, the market would have to grind back upward for a fill. Sure enough the market reversed and ground its way upward, filling both orders.

9:00pm - The 8pm hourly candlestick closed BEARISH at 20115.000. For both orders to expire successfully in the money, the Japan 225 market need to close at or below 20140 by the 10 pm expiration. The market ground back upward, threatening my SELL order at >20140. It ultimately came back down and settled at exactly 20140. A little too close for comfort, but a successful trade nonetheless.

Trade Results:

Win: SELL at >20180 - 4 contracts x $20 profit, less $7.20 in exchange fees = $72.80
Win: SELL at >20140 - 1 contract x $43.50 profit, less $1.80 in exchange fees = $41.70
Total Profit after fees: $114.50

Conclusion:

This is a new trading observation. I have back-tested as far back as I can get a feed from Investing.com. Over the past 2 months, the results look promising. I will continue to demo this a few more times to see if the strategy needs tweaking, and will continue to record and report results.

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Friday, June 12, 2015

Trading the News with Inverse Currency Pairs Using Nadex

By Cam White, TradingPub

Trading into the news can be risky, but can also be quite profitable if you have a good plan for trading into news events.

In the free eBook "Trading Made Simple - Strategies that Risk less than $100", Khari Lane of Wildcat Investment Strategies outlines a strategy for trading inverse currency pairs. Today I decided to put his strategy to work in my Nadex demo account.

Economic news reports, if they're significant, can rapidly move the markets, including currency pairs. The problem is to know which way the markets will be impacted. Will the US Dollar Index go up or down on the news? If you choose one direction, it's a gamble ahead of the news. Flip a coin.

Trading inverse currency pairs allows you to risk a small amount of money to potentially make a nice profit. Let's think of inverse currency pairs like fractions:

USD/JPY - The USD is the numerator
GBP/USD - The USD is in the denominator

If economic news triggers a rise in the USD, then the USD/JPY will rise, but the GBP/USD will fall. Conversely, if the news negatively impacts the USD, then the USD/JPY will likely fall, and the GBP/USD will rise.

Today's trade was based on the Michigan Consumer Sentiment Reports, which were released at 10am EST.

At 9:39am, just before the news was released, I placed the following 2 trades:

I placed deep out-of-the-money SELL trades, banking on both trades to dive on the news. But since these are inverse currency pairs, I know in advance that one of these trades MUST lose for the trade to be successful. But on each trade I'm risking very little to potentially make a very nice profit per contract traded.

The Michigan Consumer Sentiment reports were released, and here were the results:

Image courtesy of Investing.com

As soon as the news was released, the GBP/USD rose rapidly, becoming a loser within minutes. But the USD/JPY behaved beautifully and dove hard. By 10:35, it had broken through my 123.40 SELL strike price before settling in the money at 11am for a full profit of $91.25, less $1.80 in transaction fees.

Nadex Chart

Trade results:

Lost: GBP/USD - $10.50, less a $.90 cent execution fee = $11.40 loss
Won: USD/JPY - $91.75. less $1.80 round-trip transaction fees = $89.95 profit
Total Profit after transaction fees: $78.55

Conclusion:

I made this trade in my demo account. If I had traded this account live, I had plenty of opportunities to exit the trade early and capture profits between $50-$70. With a total of $18.75 at risk for both trades, even that would have been a nice return on capital risked. Today's trade was textbook.

Important Note: This strategy only works if the economic news event is powerful enough to to really propel a breakout. If the news was in-line with expectations, then the markets may have exhibited a neutral response. If the markets traded sideways after the news, there is a chance that both trades would have lost.

If you would like to read more about this strategy, along with 10 other Nadex strategies, make sure to download "Trading Made Simple - Strategies that Risk Les than $100". It's new from TradingPub, and it's free!

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Video: How to Trade Inverse Currency Pairs with Nadex
Khari Lane, Wildcat Investment Strategies