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News Trading on NADEX with Bull Spreads


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#1 charlesl

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Posted 08 May 2014 - 06:11 PM

I plan to trade bull spreads on high-impact news releases.  For tomorrow, I have in mind trading the Canadian Employment Report.

 

This report, much like the NFP, does tend to move the market.  Recent reports have caused nice movements in USD/CAD as a result of this report as shown here (from forexpeacearmy.com which has a nice historical news calendar showing you the action in key currencies following high-impact news):

 

pwp8.png

 

That was a 40 - 50 pip move last month when the report came out.  I'll try to capture that with a bull spread.  What side to take on this trade?  I am not into taking both sides.  So, my strategy is just going to be to pick one.  Doing this means that if I pick the wrong side, I will definitely lose my entire position.  But, that's OK.  If going long, I want to get in near the floor and if going short I want to get in near the ceiling.  That means my risk is well understood going into the trade (and as low as it can be)

 

So, which side am I going to pick?  Last month's report was stellar.   Many more jobs were created in Canada than expected.  Since that is good for Canadian dollar, USD/CAD dropped hard.  This month, the forecast calls for many fewer jobs to be created. than last month.  I am going to take the view that the economists are right on their projection that the Canadian economy created fewer jobs.  But, since I believe they often get their numbers wrong, I am going to take the view that the number of jobs created is going to be even less than what they forecast.  If that is true and the number comes in much lower (maybe even negative), then that will be bad for the loonie (as the Canadian dollar is often called) and USD/CAD should pop up hard.

 

So, I plan to buy a bull spread as close to floor as I can.  Buy going long near the floor, I will know my risk up front and be OK with losing it all.  But, I will also know that the trade could deliver some outstanding reward if I pick correctly.  I think knowing your risk is preset is a key reason to trade NADEX anyway.

 

I did have some success with my logic on what side to pick earlier in the week:

 

p8vr.png

 

That gives me a little confidence, but I am really a complete novice with these bull spreads.  This is just an idea.



#2 charlesl

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Posted 09 May 2014 - 04:32 PM

This trade turned out to be profitable.  The economists were right that the Canadian economy would add fewer jobs than reported last month.  However, the report was even worse than they anticipated.  There was a net loss of jobs rather than than a small gain.  As expected, USD/CAD rose immediately.

 

I got my entry a few minutes before the data release:

 

n5da.png

 

And I exited several minutes before expiry:

 

xs9a.png

 

Or an alternative view of the same info:

 

t9al.png

 

 

Here's the math of the trade:

 

I sold at 1.0831.  The floor on the trade was 1.0820.  The difference between 1.0831 and 1.0820 is 11 pips.  These contracts move $1 for each pip of movement in the underlying currency pair.  Since I had 50 contracts, the most I could lose on the trade is $11 X 50 = $550.  I would have had the maximum loss had USD/CAD dropped to 1.0820 or lower at expiry time.  On the upside, my maximum potential profit per contract would have been the ceiling on the trade of 1.0920 - my entry level (1.0831) = 89 X 1 = $89.  So, with 50 contracts, my maximum profit potential was $4450.

 

In fact, I exited the position at 1.0898.  That was a difference of 67 pips from my entry.  With 50 contracts, my profit (excluding $7 in fees to put the position on and $7 in fees to exit) was $3350.  A profit of $3350 on a total risk of $550 means this trade yielded about 600 percent.

 

I was focused strictly on trading a bull spread on this report.  So, I didn't even look to see the prices for the intraday USD/CAD 10am binary.  That should have been tradeable in theory as well.  The strike level on the contract at the top of the ladder was 1.0870.  A trade equivalent to the bull spread I did would have required getting into the position at $16 or so.  Not sure if you could buy the contract at that level.  Maybe it was priced even less.  If that's the case, the binary would have produced an even better return.


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#3 David

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Posted 09 May 2014 - 09:20 PM

This is why I absolutely love Nadex.  Reminds me of a similar trade, however I ended up taking both sides.  I dropped $1k each direction, if I would have held it would have been $17,000+ profit, however I got out early with 4k profit.  Gotta love it.

Please keep us updated with how these trades are progressing.  I usually only trade the binary portion of it, but the bull spreads look very cool.


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#4 charlesl

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Posted 29 May 2014 - 08:31 PM

From looking at the calendar, the next data releases of interest will be next week.  On Tuesday we have the Australian GDP number and Friday we have the Canadian employment number.  We really just aren't interested in any reports that don't have the potential to move the underlying currency some significant number of pips.  It's hard to put a number on it, but for spreads, maybe a potential 40 pip move might be a good number to use to determine if a report is worth taking the risk.  In other words, does recent history show that when the number comes out, the underlying will move at least 40 pips from just before the report to the next NADEX expiry time?

 

For Australian GDP, the March release delivered about 35 pips of movement.  The December release delivered about 60 pips of movement.  In September, it was about 40 pips of movement.  That seems like a good candidate.

 

For Canadian employment, the last release caused USD/CAD to move about 70 pips.  April saw USD/CAD move about 60 pips after the data was released.  March saw over 80 pips movement.  

 

So, out of the two, Australian GDP isn't quite as good.  Canadian employment looks like a real opportunity though.



#5 apexinvesting

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Posted 29 May 2014 - 09:38 PM

I cover the news everyday and expected moves every day on my radio show.

Most average moves don't take into account release to high and release to low. Also you need to know ow movement pre release to know ow when is the optimal time to get in and when the max move is achieved by consistently so you know the best expiration to pick to give the time for the trade to work out... but not pay for time not needed and know by what time you should take profit. Also averages paint a false picture as huge numbers can easily increase small ones. Ie 3 90 pip moves in 12 months 9 months only had 10 pip moves 360 pips total / 12 = 30 pips average move

On binaries be very aware of a volatility crush around certain news events where the premium can easily be sacked out if the market does not move that much.

Spreads work a lot more consistently than binaries on news and often I collect premium on them as 10 to 11 out of 12 reports it's profitable

Binaries either tale profit or pretty much lose so if little move if sacked out and lose and if it is just a tick passed then total loss on one side or exit early then it comes back etc... I just set spreads on and sit back and let paint dry and collect premium

#6 apexinvesting

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Posted 29 May 2014 - 09:40 PM

I post the stats for the news trades free on my site along with the free spread and binary scanner

Also I lay out the plans ideal entry and exit. Iron condors will profit a lot more consistently than straddles. I've been doing these on nadex for about three years. Lots of videos and tools free enjoy :)
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#7 charlesl

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Posted 31 May 2014 - 09:10 PM

Iron condors?  Straddles?  Let's keep this thread as jargon-free as possible.  If you must use jargon, please be so kind as to explain what exactly you are talking about.  



#8 David

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Posted 03 June 2014 - 05:12 AM

We've got NFP coming up on friday. I'm going to try some bull spreads and binary contracts to see which may be the best option for it.

#9 charlesl

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Posted 04 June 2014 - 12:00 AM

For what it's worth, here is the movement for a few time slots in the recent history of the NFP:

 

2014-05-02 eurusd 8am to 9am 39
2014-05-02 eurusd 8am to 3pm -5
2014-05-02 eurusd 9am to 3pm -44
2014-05-02 usdjpy 8am to 9am -31
2014-05-02 usdjpy 8am to 3pm 25
2014-05-02 usdjpy 9am to 3pm 56
2014-04-04 eurusd 8am to 9am -10
2014-04-04 eurusd 8am to 3pm 5
2014-04-04 eurusd 9am to 3pm 15
2014-04-04 usdjpy 8am to 9am 8
2014-04-04 usdjpy 8am to 3pm 67
2014-04-04 usdjpy 9am to 3pm 59
2014-03-07 eurusd 8am to 9am 45
2014-03-07 eurusd 8am to 3pm 28
2014-03-07 eurusd 9am to 3pm -17
2014-03-07 usdjpy 8am to 9am -79
2014-03-07 usdjpy 8am to 3pm -36
2014-03-07 usdjpy 9am to 3pm 43
2014-02-07 eurusd 8am to 9am -26
2014-02-07 eurusd 8am to 3pm -61
2014-02-07 eurusd 9am to 3pm -35
2014-02-07 usdjpy 8am to 9am 18
2014-02-07 usdjpy 8am to 3pm 2
2014-02-07 usdjpy 9am to 3pm -16
2014-01-10 eurusd 8am to 9am -49
2014-01-10 eurusd 8am to 3pm -71
2014-01-10 eurusd 9am to 3pm -22
2014-01-10 usdjpy 8am to 9am 41
2014-01-10 usdjpy 8am to 3pm 96
2014-01-10 usdjpy 9am to 3pm 55
 
The number at the end represents the number of pips of movement from the starting time to the ending time and the times shown correspond with the New York time zone.
 
While, I am also mulling over trading the NFP, I am definitely going to be in a trade on the CAD employment report. The report last month called for fewer jobs being added to the economy.  The economists got the direction right but the actual number was even worse than they predicted.  This month they are calling for a reversal with the economy adding a decent number of jobs.  I'm going to take the position that they've got the direction right and that the economy did in fact add jobs.  However, they number of jobs added may be even better than what they are expecting.  If that is true, then the USD/CAD should fall hard on the news.
 
With that in mind, I'll put on short position selling a USD/CAD spread near the ceiling to minimize the risk.  I have not determined how much money I will put into the position.  But, whatever the amount, I will definitely lose it all if the number of jobs added is not above the forecast as I believe it will be.  In looking at the history of this report, I think the optimal time to get out of the trade is somewhere in the first 30 minutes after release.  With that in mind, I'll want to be in a spread expiring at 9am.
 
What else can go wrong on this trade?  The NFP jobs number (the number of jobs added to the US economy) comes out at the same time.  In the last few months, the two numbers have complemented each other.  That is, if the Canadian jobs number came out better than expected, then the American number happened to be worse than expected.  Or if the Canadian number came out worse than expected, the American number came out better than expected. Therefore, there has been nothing to impede the USD/CAD's reaction to the Canadian jobs number.  By contrast, back in January, there was a terrible Canadian jobs number which should have sent the USD/CAD to the moon.  However, there was also a terrible American jobs number, which should have sent the USD dropping like a rock.  You would guess that conflicting numbers like that would lead to some confused trading in USD/CAD and indeed that was the case:
 
NhREN7u.png
 
You can see the up and down action in the first minute and the next few minutes before USD/CAD got pushed up a considerable amount by 9AM.  This was on the back of an absolutely terrible American jobs number.  But, apparently the market decided that the Canadian number was even worse and the Canadian dollar got crushed.  
 
If there is another conflict like that, it could get ugly for my trade.


#10 apexinvesting

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Posted 05 June 2014 - 02:18 PM

Hi Charles, 

Sorry if you ar not familiar with condors or straddles. I have made numerous post on BOD, on Nadex hosted webinars, on my youtube channel, and my daily radio show concerning them.

 

On stats there are a few things to be aware of low to high does not help that much as it may be half and half or the whole amount up or down or anywhere in between. YOu need to know release to high release to low also use the other time frames such as 7-9 and 8 to 10

 

To get you up to speed

A straddle is buying a spread above the market and selling a spread below the market to potentially profit it the market moves far enough in either direction.  (Where the floor of the bought spread and the floor of the sold spread  are the same) On these trades the pricing must be low enough and the profit must be taken as a retracement will quickly turn a profitable straddle into a losing one and if there is little to no movement it is even more challenging.  These seem attractive at first but often once you do the math they arent. ie on a straddle that cost 70 pips the market would have to move 70 pips for you to be breakeven and 140 pips to make a 1:1 on the trade.

A iron condor is buying a spread below the market and selling a spread above the market (where the floor of the sold spread and the ceiling of the bought spread are the same). This trade uses the correct assumption that the imvplied volatility (expected movement is built into option pricing) to be high enough to cover the expected move and therefore profiting from a range bound trade. I covered this today on my radio show and my Thursday AM webinars. You are buying the spread below and selling the spread above the market. This is usually my preferred and most consistently profitable news trading strategy. These look at first glance to be a bad idea but when you work out the math they are actually among the best trade possible. For instance same sprads but inverted for a max profit of $60 combine you will make money in a 120 pip range 60 pips up and 60 pips down if it is in that range by expiration. Every tick it is closer to the center of iron condor. The joint floor/ceiling, is another $1.00 made on the trade. For a max profit to loss 1:1 ratio you have a range of 180  90 pips up and 90 pips down.

Its a little work to get it down but its more than worth it.

If your not caught up on these topics all the education, webinars, binary spread scanner etc.. is free on my site let me know I would be more than happy to help

 

Loving your post and commentary. Great job working through it all. 

 

 

 

Iron condors?  Straddles?  Let's keep this thread as jargon-free as possible.  If you must use jargon, please be so kind as to explain what exactly you are talking about.  

 



#11 apexinvesting

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Posted 05 June 2014 - 02:23 PM

This is my NFP plan for tomorrow. I update the news plan daily on the site.

 

US and CAD Employment and NFP/Payroll

7:00 AM - 3:00 PM  Jun 6, 2014 
(News Iron Condor/Straddles)

Iron condors the min profit are based on the ranges we have had over the 12 months so they are the ideal minimum profit

 

Most of the movement usually all happens in the first 15 minutes. so go for as much time as you can get - ideally 3 pm (but spreads will be wider 7 am (note i am referring to the actual spread with floor ceiling - not to the bid/ask) or 10 AM note best(entered at 8 AM)

Currency (Range over past 2 years) (min profit based on last 12 releases)

AUD/USD 60 (ideally if you can get at least 50 pips in min profit this is good)

EUR/USD 100 (ideally if you can get at least 60 pips in min profit this is good)

GBP/USD 100 (ideally if you can get at least 70 pips in min profit this is good)

USD/CAD 75 (ideally if you can get at least 60 pips in min profit this is good)

USD/CHF 92 (Ideally if you can get at least 60 pips in min profit this is good)

USD/JPY 80 (ideally if you can get at least 60 pips in min profit this is good)
 

 

 

*Straddles: Note these are the ranges expected (min profit pips). So if you can pull off a straddle taking profit for 1:1 from the market price up to the expected move for 9, 10 or 3 PM that is acceptable and a better trade in many cases. Make sure to use limit take profit orders entered immediately after filled. Also Be very aware of deviation levels and take profit before the deviation level is hit.

*Advanced Straddles

Synthetic Hedge or Synthetic Straddles on EUR/CAD and GBP/CAD - market moves 100-150 pips on these pairs during NFP

Syntehtic Hedge or Synthetic Straddles on EUR/CAD and GBP/CAD - market moves 100-150 pips on these pairs during NFP

ie buying eur/usd and buying usd/cad upper spread

and selling eur/usd and sell usd/cad lower spread

 

watching eur/cad chart for trade managment

 

90% of the time the biggest move has happened in the first 15 min

 

Based on this you can use 9 10 or 3 pm expirations - and can enter anytime between 7 and 8:15 AM



#12 charlesl

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Posted 06 June 2014 - 08:24 AM

The data out of Canada was inline with expectations.  The forecast was for the Canadian economy to add about 24K jobs.  In fact it added about 25K jobs.  That was generally positive for the Canadian dollar.  I followed through on my plan to take a short on USDCAD:

 

urFMdXS.png

 

I put on a bull spread and a binary in the same direction--short USD/CAD.  The risk on the binaries was right around $500 and the binary was right around $70.  My direction on this trade was wrong.  So, I lost about $570 total on my positions.



#13 apexinvesting

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Posted 15 June 2014 - 04:37 AM

Try iron condors or straddles so you don't have to be right about direction. I provide the stats on most news announcements tailored specific to nadex on my site currently and for about a year now for free.

#14 charlesl

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Posted 08 August 2014 - 12:09 PM

Trading the Canadian jobs report using spreads seemed more attractive than binaries due to the pricing of the binary contracts.

 

ABj6GAg.png

 

+ $2139



#15 Singh

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Posted 08 August 2014 - 02:51 PM

Gotta love it great job bro.

Singh

"The game taught me the game. And it didn’t spare me rod while teaching."
- Jesse Livermore

 

My Youtube channel for trading videos -  https://www.youtube....user/mindpl4y3r


#16 Chronos24

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Posted 08 August 2014 - 03:11 PM

Very nice job!



#17 Chronos24

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Posted 08 August 2014 - 04:07 PM

I really like the idea of spreads, it seems less risky. I understand you don't make as much, but you still made a great profit. It really makes sense to use spreads when the binary's price is to high as well. As always thank you for sharing! 


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#18 charlesl

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Posted 10 August 2014 - 08:08 AM

Looking at the calendar for the coming week, I don't see any tradeable reports. 



#19 David

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Posted 10 August 2014 - 09:22 AM

Looking at the calendar for the coming week, I don't see any tradeable reports. 

 

Thinking no significant movement on retail sales on Wednesday @ 8:30?



#20 Singh

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Posted 10 August 2014 - 05:38 PM

Well just logged into my nadex account and guess what new strike widths are now in affect. Eur/usd 4 pip wide strikes and aud/usd 5 pip wide strikes .that should be great in mews trading and should enable us to trade low impact news as well .lets see how it goes.


Singh

"The game taught me the game. And it didn’t spare me rod while teaching."
- Jesse Livermore

 

My Youtube channel for trading videos -  https://www.youtube....user/mindpl4y3r





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