Nadex Trade of the Day – Always Trust Your Trading Rules

TradingPub Admin | January 28, 2015

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Have you ever deviated from your trading plan? Our in house Nadex trading expert Cam White did today and goes on to share his experience and trading education below.

Today I deviated from my core trading rules on a very simple strategy and it came back to bite me.

A veteran trader once observed that the 7 am 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
  • 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.

Sounds simple enough, and it is. Through months of back-testing, demo-testing and live trades, this simple trading strategy is successful the great majority of the time (better than 75%). 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 8 am, after the 7 am hourly candlestick has closed.

The past couple of trading days, my indicators pointed to the direction of the DAX successfully. On Monday, all indicators were bullish, and the trade closed bullish. Yesterday, the same indicators were strongly bearish, with a bearish result. Today, they also pointed bearish.

Daily DAX Trading Chart

Going into the 7 am hour the Germany 30 Index was bearish, and well below the 5 minute Ichimoku cloud. My other indicators (8 EMA, 50 SMA and Stochastics) were also pointing to a bearish session.

7:00 am: The Germany 30 (DAX) market opened at 10628.  The first 5-minute candlestick was significantly bearish. Convinced that the market was going to be bearish, a pending/working order was placed to SELL at 10646, the first strike price above the opening price. Risk $50. reward $50. Now it was just time to wait for a fill.

7:30 am: The market starts to come back up, and it breaks into the cloud. At 7:37, my pending order fills and I'm in the market with a SELL order at 10646, risking $50 to make $50. Now I need the market to go back down.

8:00 am: The 7:00 am hourly candlestick closed bullish at 10668. Now I'm on the wrong side of my trading rules with a sell order in the market. The odds are stacked heavily against me at this time. The first 3 candlesticks of the 8am bar were bearish, offering a little hope. Then the market ground back up. At 8:25 there was a nice bearish candlestick giving one last glimpse of hope.

8:30 am: The market moves back up. Time to bail out of the trade. Took a $39.50 loss on the trade. The session expired at 10667, 39 points above the 7:00 am opening price.

I trusted my indicators over the simple price action rules of this strategy and it cost me today. A nice winning streak came to an end. If I had waited patiently, the bullish nature of this candlestick would have been confirmed by 7:50am. According to the rules of this strategy, I would have placed a BUY order at 10626. There's no way I would have gotten a 1:1 risk reward ratio, but I could have safely gotten a deep into the money order, risking $80 to make $20. At the very worst, I would have placed a working order that never filled.

The other mistake I made was not taking earnings season into consideration. Although my indicators were bearish, AAPL blew the roof off their earnings estimates, which propelled the markets upwards when they opened. Lesson learned. Stay patient, and watch the 7 am hourly candlestick develop.

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

If you would like to learn more about Nadex, or how to trade  Binary Options, please check out our free video library and learn why this may be an interesting new way for you to diversify your trading portfolio.

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The Trading Pub Team