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NADEX Trade of The Day- Trading The DAX

TradingPub Admin | February 9, 2015

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Today was a day where the Nadex Germany 30 (DAX) strategy behaved beautifully. No high impact economic news to shock the markets, just smooth sailing. This strategy has very simple rules, but sometimes rules have exceptions. And today the exception came in to play.

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.

02 09 2015_DAX_5Min
DAX Market Trading Chart (5 min.)

7:00am- The market was on a downtrend going into the 7am-9am time frame. The 7am hourly candlestick of the Germany 30 (DAX) market opened at 10664.967, and started grinding upward be fore retracing in the back half of the hour. The 7am hourly candlestick closed bullish at 10831.833. The following pending orders were placed once the 7am hourly candlestick was confirmed bullish.

  1. BUY at 10656 (1 contract): Risk $50, Reward $50
  2. BUY at 10636 (2 contracts) Risk $75, Reward $25

At 8:25, both orders filled. Now it was time for the market to retrace and move back upwards. It breached the 10656 level and the 10636 levels, threatening a double-loss before it finally climbed within the last 10 minutes of the trade. The first order lost $50, and the second order gained $50 for a $4.70 loss after exchange fees were deducted. Pretty much a slick.

For 2 consecutive days, this strategy failed if it was was followed exactly according to the rules in the beginning of this post. On Friday, the 8:30 US monthly Jobs reports narrowly lost the trade. But today it was an exception to the rule that required a closer look at the hourly charts:

02 09 2015_DAX_Hourly
DAX Market Hourly Trading Chart

On the hourly chart, the 2nd candlestick at 3am was a huge bearish candlestick. Notice how the market always comes back to the T-Line (8EMA). At 6am, the market gapped down, and the 7am candlestick merely returned back to the T-Line. At 8am, the market continued on its downward path taking out the 10656 BUY order, but falling short of breaching the 10636 BUY order at expiration.

In hindsight, here's how I would have traded today differently:

  1. Knowing there was a possibility that the regular rules of this strategy would be trumped by the hourly downtrend, I would not have made the BUY order at
  2. Instead, I would have placed a BUY order at 10636, risking $50 to make $50, and a back up BUY order at 10616, risking $80 to make $20 (x 3 Contracts

If you strictly followed the rules of the 7am-9am Germany 30 (DAX) strategy, and BOUGHT the market at the strike price BELOW the 7am opening price, then your trade would have been a loser. Be very careful trading into strong hourly downtrends.

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The Trading Pub Team