NADEX binary options are a poweful tool in the right hands. These options, unlike most other types of binary options on the market today, offer some of the most versatile trading there is. I have been asked many times what types of strategies work best with NADEX so I am taking the time now to provide an overview of what kinds of trades you can make with these highly adaptable trading vehicles.
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NADEX Trend Following Strategies
Because NADEX options are binary trend following strategies work extremely well. Trend following strategies utilize the power of the markets own movement to help ensure trades. Technical indicators like trend lines, moving averages and oscillators like stochastic, MACD and RSI are great ways to pin point entries in this manner. The theory is simple and works well to weed out false signals. Every indicator gives off multiple kinds of signals for buying and selling that have no regard for market conditions or trend. If the trend is up it makes sense that a trade to the upside has a better chance than a trade to the downside. Using this as a basis then you will only take signals that are in line with the underlying trend and no signals that go against it.
In my experience there are weak and strong trend following signals. In time recognizing the difference becomes easy. Weak signals usually precede a stronger signal but a stronger signal does not always come after a weak one. Sometimes a strong signal will be followed by numerous weak signals. Each weak signal that comes after a strong signal can be considered to be an entry in a trend following strategy. Look at the chart above. At point one there is a weak stochastic signal followed by a stronger signal at point 2. Then later on another weak signal at point 3 results in a profitable entry as well.
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Trend following signals can come in every time frame. The best time frame for each trade will depend on the asset and the underlying trend. I like to use charts of daily prices for trend and entry for most assets and the charts of weekly prices for longer term analysis. Currency pairs trade in a tighter range than stocks or indices so shorter charts are good for them. I usually use 1 hour or 30 minute. When choosing expiry I look to the signal strength and the chart duration. If the signal is weak I choose a strike price that is at-the-money. If the signal is strong I choose one that is farther out-of-the-money in order to capture larger gains. As for expiry, that depends on the chart. Most of my signals take 3-8 candles to move into the money. On a chart of daily prices that means an expiry of 3 days to a week usually. On a chart of hourly prices it could mean an end of day expiry or end of tomorrow.
NADEX Credit Strategies
NADEX binary options are unique in that they can be bought and sold. I don’t mean that NADEX has early out options, I mean that NADEX binary options can be sold to open giving you a credit. This means you get paid up front for the option instead of having to wait for it to expire. This feature can be applied to nearly every type of NADEX strategy including trend following strategies. The NADEX trend following credit strategy works great in a down trend. Instead of buying positions on the entry signal you sell them. The great thing about bearish strategies like this is that usually move into the money much faster than bullish ones. This binary options on the USD/JPY is out of the money and can be sold for a credit of $33.
Credit strategy can also be utilized in an uptrend. Once a bullish movement has occurred a pullback or consolidation usually follows. At this time you can sell positions that are out of the money with a reasonable expectation that they will close out of the money. On an average consolidation I would stick to options that are out of the money but contrarians or those trading on divergences or other reversal techniques can reap huge profits selling in the money options.
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NADEX Hedging Strategies
Hedging strategies seek to profit from short term movements in underlying asset prices, trading ranges and what I call knee-jerk reactions but are also known as pops-and-drops. Because it is possible to both buy and sell NADEX options you can enter into two positions that off-set each other and more than that, you can do it in a way that both profit. Basically the idea is to enter into a long position, allow it to move up and gain some value and then sell and offsetting one. This works well with a trending asset and even better with range bound assets. In an uptrend buy on the entry signal and then use a shorter time frame to pinpoint pullbacks in the trend. Do the same thing with a range bound asset. Buy on the entry signal, or sell on the sell signal, and then enter the reverse position as the asset reaches the opposite range limit.
NADEX 30 Minute Binary Options Strategy
I also call this the ITM strategy because you are looking for ITM options. This strategy is a combination of the three techniques described above and utilizes expiration time to help ensure profitability. This strategy will work for stocks, indices, commodities and forex pairs. I suggest using the daily charts for trend, then move down to the hourly charts for choosing your positions. You want to start off with a look at trend to see what the underlying condition is. A market trending strongly in one direction may be better suited to a trend following strategy. Use the daily chart to draw trend lines and any support or resistance that looks important.
Once that is done move down to the hourly charts and get a look at how day to day price action is behaving around your lines and if any shorter term support, resistance or trend lines look important. Draw them if they do. These lines tell you what strike prices to look for. So, about 30 minutes before your chosen expiration, or 30 minutes before every expiration, look at your charts and then look at the available strikes. The idea is to buy strikes at or below lower support and to sell those above upper resistance. By doing this you can buy options that are already in the money and sell those that are already out of the money for instant, or near instant, profit. All you have to do is hold them until expiration. The returns on this type of position isn’t great, on average about 10-15%, but it is quick and easy 15% that you can make every time an option approaches expiration.