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An After Breakfast Nadex Trade on the FTSE 100 Index

TradingPub Admin | June 24, 2015

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Pour some tea and enjoy a scone. Here's a trade that may have some promise on the FTSE 100 Index. The FTSE 100 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 9 am EDT hourly candlestick controlled the 10 am EDT hourly candlestick with a high degree of frequency.

Here's what I saw:

FTSE_100_Strategy
FTSE 100 Strategy Trading Chart

Notice the 9am hourly candlesticks above. Can you see that the following 10 am 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 7 am-9 am 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 9 am-11 am EST Nadex time period for the FTSE 100 Index.
  • If the 9 am EST hourly candlestick is BULLISH, then BUY at the first Nadex strike price available BELOW the opening price of hourly candlestick.
  • If the 9 am 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 fairly consistent. Just be patient and watch the 9 am 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 10 am, after the 9 am 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:

06.24.2015_FTSE
FTSE 100 Trading Chart

9:00 am - The 9 am 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 am I was convinced the hourly candlestick would close bullish, and I placed the following trade in my demo account:

06.24.2015_Trade_Details
Trade Detail Table

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.
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Cheers the Trading Pub Team!