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Nadex Trade Of The Day- Trading the DAX

TradingPub Admin | January 23, 2015

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Trading into the news always involves risk, but today it worked out quite well for trading the Germany 30 (DAX) market with Nadex binary options.

A veteran trader once observed that the opening price of the 7am EST hourly candlestick for the Germany 30 (DAX) index is a pivotal point that sets the direction for the following hour(s).

If the 7am hourly candlestick is bullish, then the 8am hourly candlestick is likely to close above the opening price of the 7am opening price. Conversely, if the 7am hourly candlestick is bearish, then the 8am hourly candlestick is likely to close below the 7am opening price. This happens better than 70 percent of the time, and within the past 20 trading days, it has occurred about 90 percent of the time.

The rules for the 7am Germany 30 (DAX) Strategy are quite simple:

  1. Refresh your Nadex screen at 7:00 am EST  and select the 7am-9am trading period.
  2. Record the opening price of the 7:00 am hourly bar. Also record the first Nadex strike price available above and below the opening price.
  3. Watch the hourly candlestick develop. This can take patience, but you are looking for confirmation of a bullish or bearish hourly candlestick. In some cases, it can take almost an hour for confirmation.
  4. If the hourly candlestick is bullish, then BUY from the first strike price BELOW the 7am opening price.
  5. If the hourly candlestick is bearish, then SELL from the first strike price ABOVE the 7am opening price.
  6. You can place a market order, yielding a lesser profit and greater risk, or you can amend your order, risking $50 for a 1:1 risk reward ratio. Your order will be a working order until the market retraces to fill your order.
  7. That's all there is to it. If your order fills, then you just wait until the contract expires at 9:00 am. If your positions are threatened, you can always exit early and preserve some profits or minimize losses.

Germany 30 (DAX) Trades (January 22, 2015):

01 22 2015_DAX
Daily Trading Chart- DAX Market

 

There was a lot of economic news going into the 7am-9am window:

  • 7:45 EUR: Interest Rate Decision (Jan)
  • 8:30 USD: Continuing Jobless Claims
  • 8:30 USD: Initial Jobless Claims
  • 8:30 USD: Jobless Claims 4-Week Average
  • 8:30 EUR: ECB Press Conference (Draghi speaks)
All eyes were on European interest rates and what Draghi would say about Quantitative Easing in the Euro Zone.  In the pre-market hours, Steve Ruffley from iView Charts offered his opinion on the Draghi speech and how the markets were likely to react. He was siding with the bulls.  In a nutshell he believed that the Wall Street Journal and Bloomberg had already leaked the outline of the plan, but that the markets needed to confirm how much QE would be infused into the markets over what period of time?
At 7am the Germany 30 (DAX) index opened at 10296 and headed downward for the first 20 minutes of the session. This is where patience is important. My bias about the pending news was bullish and I wanted to see how the hourly candlestick fully developed. What I found most interesting was that there were strike prices very deep into the money that actually had decent risk/reward to them. All that told me was there was a lot of investor uncertainty going into the news. I found the following proposition and placed a BUY order:

Trade Details: 
Contract: Germany 30 (Mar) >10207 (9AM)
Expiration: Thu Jan 22 09:00:00 EST 2015 
Direction: BUY 
Quantity: 3 
Price: 79.50

This trade was 89 points in the money. Under normal circumstances, there would be no market for this trade. Maximum risk:  $238.50. Maximum Reward: $61.50. That may sound crazy, but I had high confidence this position wouldn't be threatened at the time I placed the trade.

At 7:45, the EUR Interest Rate Decision came in unchanged. In a split second, market reacted violently upward and downward before it settled right where it had been. A lot of people in the market would have been stopped-out. But with Nadex, you can't get stopped-out as long as the trade is active.

At 8:30, the US jobs reports came in slightly bearish, followed by the ECB Press conference. Draghi announced the addition of Lithuania to the Euro, and his remarks were in line with the reports leaked the previous day from the WSJ and Bloomberg. The market climbed upward rapidly, then dove briefly when Draghi talked about some risks. As he continued talking and fielding questions, the market shot back up again.

As soon as the 8:30 news was digested, I placed my traditional DAX strategy order. The 7am hourly candlestick closed bullish, so I placed a BUY order at the first strike price offered BELOW the opening price of the 7am hourly candlestick (10296):

Trade Details: 
Contract: Germany 30 (Mar) >10287 (9AM)
Expiration: Thu Jan 22 09:00:00 EST 2015 
Direction: BUY 
Quantity: 1 
Price: 43.00

 Maxim Risk: $43. Maximum Reward $57. The market was still jittery and I got a better risk/reward for this at-the-money trade. I took this trade purely on trust. Based upon experience, I knew there was a high probability that the 8am hourly candlestick would close above 10296. It closed at 10328.

 Both trades settled in the money, yielding a $118.50 gross profit, less $7.20 in exchange fees for $111.30 net profit.

Fore more education on Nadex see the FREE library we put together, simply CLICK HERE. 

SEE THIS VIDEO WITH CAM DISCUSSING THE 7AM DAX STRATEGY:

Cheers!

The Trading Pub Team