The Inquisitive Trader: Stocks

Showing posts with label Stocks. Show all posts

Monday, August 10, 2015

A Lunchtime "Pastrami" Trade on the S&P 500 with Nadex Binary Options

When I think about lunch time on Wall Street, I think of a Pastrami on Rye at a New York Deli. With that in mind, I recently came across a lunch time trade that looks like it could be quite tasty. In honor of lunch time in New York, I am calling this trade the "Pastrami".

A few weeks ago, I was doing some monthly analysis on some of my other favorite trading strategies, when I noticed a very consistent pattern that revealed itself on the S&P 500 Futures market.

Looking at the hourly charts, something jumped out at me. It appeared that the 11:00am EDT hourly candlestick controlled the 12:00pm EDT hourly candlestick with a high degree of frequency.

Here's what I saw:

Hourly Chart of S&P 500 Futures (Investing.com) Click on Chart to Enlarge.

Notice the 11am hourly candlesticks above. Can you see that the following 12pm candlestick never challenges the opening price of the 11am candlestick? In fact, the 12pm candlestick tends to continue in the same direction that was established by the 11am candlestick. I back-tested the hourly charts on Investing.com charts for 40 trading days, and the same pattern repeated itself for 36 out of 40 days. That's a 90% probability of a pattern repeating 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 "Pastrami" strategy are very simple to execute:

Select the 11am-1pm EST Nadex time period for the US 500 Index on the Nadex platform.
Once you are 100% convinced that the 11:00am EDT hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of the 11am hourly candlestick.
Once you are 100% convinced that the hourly candlestick is BEARISH, then SELL at the first Nadex strike price available ABOVE the opening price of the 11am hourly candlestick.

This is a very simple strategy that looks like it can be fairly consistent. Just be patient and watch the 11am 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 12pm, after the 11am hourly candlestick has completely closed.

I have taken several trades with this strategy in demo, and I like what I'm seeing thus far. I don't always get filled with my risk/reward rules, but it's rare for a trade to threaten me once I'm in the market. I know that I have a recent 90 percent historical probability of my trade expiring in the money for full profit. That also means I have a 10 percent probability of losing the trade. As long as I risk $80 or less on each trade (my preference is $70 risk), I know that it's very hard to lose money.

Let's take a look at a recent "Pastrami" Trade (Friday, July 31 2015) taken in my Demo Account:

Hourly Nadex Chart on the US 500 Index (Click on Chart to Enlarge)

After three very choppy hours of trading, the 11am hourly candlestick was a battle between the bulls and the bears. Notice the wicks above and below the 11am candlestick. Ultimately, the bears won by a small margin.

Knowing that I had a 90% probability of this trade working out in my favor if I SOLD from ABOVE the opening price of the 11am candlestick, I placed the two trades at 12:13pm, after the close of the first hour of trading. I decided to wait on confirmation of the direction of the 12:00 hourly candlestick, since the 11am hourly candlestick was almost a Doji.

The first trade was placed at the very first strike price above the 11am hourly candlestick. Since the market was trading in that area, I was able to place an at-the-money (ATM) SELL trade at 2106.3, risking $50 to make $50. But since I knew the odds were heavily in my favor for the 12pm hourly candlestick to be bearish, I also took an in-the-money (ITM) SELL trade at 2107.8, risking $71.75 per contract to make $28.25.

Both of my trades were briefly threatened by an uptick in the market, before it reversed and dove until the 1pm expiration of the trade. The market settled at 2104.50, comfortably below my SELL strike prices at 2106.3 and 2107.8 for a full profit on both propositions.

Conclusion:

This is a new trading observation, and it needs further back-testing. I have only looked at 40 trading days, but need to go back further to see if this pattern holds up to the test of time.

Here's how the Pastrami trade played out over 20 consecutive trading days in July, assuming you placed a trade at the close of the 11am hourly candlestick, risking $70 per contract:

Pattern Success: The 12pm hourly candlestick did not violate the trade strike price in 19 out of 20 trades. That's a 95% success rate for the actual pattern.
Trades Filled and Won at $70 Risk: 9 trades won and settled ITM for a full $30 profit per contract. That's a $270 gain.
Trades Filled and Lost at $70 Risk: 1 trade lost and settled OTM for a maximum $70 loss.
No-Fills: 10 trades resulted in no-fills at $70 risk. The market had moved too far in the 11am hour to get my preferred $70 risk/reward at 12pm. If you waited for the candle to close you wouldn't have had a trade. No harm, no foul.
End Result: The traded would have yielded a net profit of $200, if you took a full loss on the 1 losing trade, and let your 9 winners ride until expiration.Your exchange fees would have totaled $17.10 for a net profit of $182.90. If you traded with a $1,000 opening account balance, this strategy alone would have yielded an 18.9 percent return for July.

And that will buy a few Pastrami sandwiches. I will continue to record daily results on this strategy for the months going forward, and will post the results. I will also be looking for OTM and Nadex Spread opportunities with this trade.

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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.

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.
Nadex is now available for trading in 47 countries. You will have complete access to the Nadex trading platform, and your demo account will be funded with $25,000 in play money.

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Wednesday, April 1, 2015

Today's "Strudel" Strategy - The Exception to the Rule Comes Into Play

Almost every rule has its exceptions, and yesterday the exception came into play with the Nadex 7am-9am Germany 30 (DAX) strategy. Since that's a pretty lengthy description for a strategy, I'm now shortening it to the "Strudel" strategy.

Every morning, I trade the the 7am-9am Germany 30 (DAX) strategy with Nadex binary options. This strategy was based on the observation from a veteran trader who remarked 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 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.

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.

But there is one notable exception to this strategy: Never try to catch a falling knife! And today that exception to the rule prevailed. First, let's take a look at the hourly chart for the Germany 30 (DAX) Index:

Click on Hourly Chart to Enlarge

Starting at 4am, the hourly candlesticks were on a very steep down trend. The 7am candlestick, while bullish, looked more like a retracement to the T-Line (8 EMA). Under the normal rules of this strategy, a bullish 7am candlestick would have triggered a BUY. But given the steep hourly decline of the market, caution was warranted.

Now let's take a look at the 15 minute chart:

Click on 15-Minute Chart to Enlarge

Once again, the 7am 15-minute candlestick was bearish, gapping below the T-Line. A retracement was imminent, which ultimately occurred at 7:30.

Here's how the trade played out (Tuesday, March 31, 2015):

7:00am - The 7am hourly candlestick opened at 12017.533, and continued its downtrend for 25 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 7am opening price:

Trade Details:
Contract: Germany 30 (Jun) >12030 (9AM)
Expiration: Tue Mar 31 09:00:00 EDT 2015
Direction: SELL
Quantity: 1
Price: 50.00

This was not a market order. For this order to fill, the market would have to grind back upward for a fill. Sure enough the market reversed and ground its way upward, filling my order at 7:45. I was now in the market, risking $50 to make $50. For this order to expire at 9am successfully, it would have to settle below 12030.

8:00am - The 7am am hourly candlestick closed BULLISH at 12025.033. Under normal circumstances, this would trigger a BUY at 12010, the nearest strike price below the 7am opening price.

This made me uncomfortable. The steep downtrend in the market, coupled with a bullish 7am hourly candle meant that the traditional rules of this strategy could well be violated. To further my discomfort, there was an FOMC speaker due to talk at 8:50. I hate trading into news. The market ground downward slightly, and offered me a $15 profit. I took it and exited the trade. Better to be safe than sorry. As soon as I exited the trade, the market moved downward sharply, expiring in the money at 12005.667.

The exception to the rule won in this trade. I would have stayed in the trade if it hadn't been for the looming FOMC statement. Instead of taking a full $50 profit, I took a $15 profit.

If I had followed this strategy to the letter and BOUGHT the market off the bullish 7am hourly candlestick, then I would have bought the market at the 12010 strike price, risking $50 and I would have lost the trade.

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Thursday, March 26, 2015

Nadex Trade of the Day: EUR/JPY "Sausage & Sushi" Trade

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 2 past months, I've been testing an evening trade with the EUR/JPY that has been remarkably consistent. 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.

Almost every night, the EUR/JPY behaves quite predictably, and 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.
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.This is why I like to watch the Keltner Channels and Fisher Transform on ThinkorSwim (TOS) or the EMAs and Ichimoku cloud on the Nadex charts.

Last night's "Sausage & Sushi" trade (March 25, 2015) presented a good OTM opportunity:

Click on 5-Minute Nadex Chart to Enlarge

6:00pm - 8:00pm EST: The EUR/JPY established RESISTANCE at 131.092 and SUPPORT at 130.993. 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 15-minutes after 8pm, the EUR/JPY broke through the support line, gapping hard 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 (131.00).

There were 2 SELL strike prices to consider:

SELL at 131.20: This was the safest strike price, but it was very deep into the money. If a market order was placed, it would have required risking $92.50 for a $7.50 reward. I placed a working/pending order risking $70 to make $30. For this order to fill, it would require the market to move upward significantly for a fill. With almost 3 hours left in the trade, anything is possible.
SELL at 131.00: This order was much riskier, since the support line was barely below this strike price. The market price for a SELL order was $45. meaning I was risking $55 to make $45. While those are better risk/reward odds, the market was straddling that line, and it felt a little too risky.

Sometimes you just have to trust the strategy. After 2 months of trading the strategy, the rules hold up with great frequency. The decision was made to SELL at 131.00, but a working/pending order was placed, risking $40 to make $60.

Trade Details:

Contract: EUR/JPY >131.00 (11PM)
Expiration: Wed Mar 25 23:00:00 EST 2015
Direction: SELL
Quantity: 1
Price: $60.00

1 contract was sold, with a maximum risk of $40 and a maximum reward of $60. Now it was time to be patient and let the market grind upward to fill the order.

The order filled at 8:42 pm when the market moved up sharply. From that point forward, the SELL order was never threatened, except for a brief period at 10:10pm. The market moved back down and traded sideways before it expired and settled safely in the money at 11pm.

This trade yielded a gross profit of $60 per contract, less $1.80 in exchange fees for a net profit of $58.20. The pending order at 131.20 never filled.

In backtesting, demo trading and now 2 months of live trades, I am learning to trust this strategy because it has been remarkably consistent. 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

Disclaimer

Monday, February 23, 2015

Lunchtime "Caret" Trade on the S&P 500 with Nadex Binary Options

By Sean Jantz, Founder
Binary Trade Group

If your work schedule doesn't permit you to trade during the day, here's a trade that you can make almost every day on your lunch break.

Many traders avoid trading at lunchtime because there is just not much volume in the market. With Nadex Binary Options, the lunchtime "Caret" Trade allows you to take advantage of declining lunchtime volume on the S&P 500 Futures market.

Quite often, after a busy morning session, volume on the S&P 500 has a tendency to start declining, usually after 10:00am EST. The market, which has been grinding upward hits resistance, and then starts forming an upside-down "V" pattern. I call it the "Caret" trade because it resembles the "^" symbol above the number 6 on your keyboard.

Click on Chart to Enlarge

In today's lunchtime trade, the "Caret" trade is in play. The market started moving upward after 10:00am as volume declined. At noon, the market hit resistance on the Keltner Channel and the indicators on the Fisher Transformer were lined up overbought. A reversal Star candle signaled a potential reversal. Sure enough, it happened:

Click on Chart to Enlarge

The market started to reverse with a strong SELL signal on the Fisher transformer. The following order was placed:

Trade Details:
Contract: US 500 (Mar) >2107.3 (1PM)
Expiration: Mon Feb 23 13:00:00 EST 2015
Direction: SELL
Quantity: 2
Price: 20.00

Two contracts were being sold, with a maximum risk of $160 and a maximum reward of $40 for this deep in the money trade. Now it's time to see how this trade played out on the Nadex charts:

Click on Chart to Enlarge

Vertical lines were plotted on the Nadex chart (above) denoting the 11am-1pm time frame. As you can see, the 2107.3 strike price chosen was well above the peak of the market, and when the market reversed it was time to kick back and enjoy lunch.

The trade settled in the money for full profit of $40 at 1:00pm, less $3.60 in exchange fees..

About Sean Jantz:

Sean Jantz is Founder of The Binary Group (BTG). He trades mainly Binary Options using the NADEX exchange. Additionally, he makes LIVE Calls on opportunities for members of the BTG private Facebook group on a daily basis, along with other BTG instructors. BTG provides new and experienced traders with daily training sessions for trading Nadex Binary Options.training, and has helped so many in honing their trading skills.

More information about the Binary Trade Group:

Website: http://www.binarytradegroup.com

Free Nadex Education Reminder:

Monday, Feb. 23 The Ultimate Hedge Strategy 6pm-7pm CST Register Here
For the full schedule of free February Nadex webinars, click here.

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Video: Sean Jantz Breaks Down Today's "Caret" Trade