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High Reward Twist On The “Strudel” Strategy With Nadex

TradingPub Admin | August 13, 2015

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Every morning, I trade the the 7 am-9 am 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 7 am 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 7 am-9 am EST Nadex time period for the Germany 30 (DAX) Index.
  • Once you are 100% convinced that the 7 am 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 7 am 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 7 am 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.

08.11.2015_Strudel
Strudel Strategy Trading Education Chart

Looking at the chart above, the market had been on an extended downtrend, opening at 11422 at 7:00 am 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:

08.11.2015_DAX Trade Details
DAX Trade Details Table

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