Hello Traders! How the H, E, double hockey sticks are ya? I had a question posed to me on facebook the other day and I told the guy I would address it here so here goes.
I know how to collect money in a similar fashion to rollover but pays a lot more with minimal risk. This is just to get you thinking so I would like your feed back on what you think about what I am getting ready to propose.
The following is an equity chart on a back test of the subject matter today. Here was the strategy… At the beginning of the test, I went long EURUSD in Feb 2007 and just held onto the position until the test ended. I have an input that calculates if I held the position and collected $100 in rollover for every 1 standard lot I traded. In other words, if I made the equivalent of 10 pips per day profit on the amount traded.
So Take a look at the chart first and notice the equity curve.
Notice the period around 2008 when all the financial crisis garbage was happening. Notice the draw down. In the long ru, it seems that the draw down was not even a problem.At the time, it may have looked big but in the end, it was just a blip on the radar.
So this is how the equity curve looked if I went long. What happens when I go short? How would the equity curve look then? Would there be a massive draw down? Well lets take a look. On the next chart, I show the exact strategy but instead of going long, I go short and hold onto the position for the entire time. I collect my $100 per trading day on 1 standard lot of EUR/USD.
Ok there you have it. It looks about the same no matter if you are long or if you are short.
So I bet you are asking yourself something like, ” Well how to you collect $100 per day similar to rollover?” To do this, I will show you a live shot of todays Nadex screen.
First of all today is Monday 10-17-2013 at 6:39am eastern. The current spot price of the eurusd is 1.3575. Check it. now look at the nadex chain below. This is the weekly chain. These trades close on Friday at 3pm.
Now lets make this simple. There are only a few scenarios here.
If you are long with 1 standard lot at 1.3575 and you choose to short the >1.3675, what will happen if price closes at 1.3650 at the end of the week? You will make $210 on your nadex position. You will also make $750 on your spot position.
What happens if price closes at 1.3775? You lose $790 on your nadex and make $2,000 on your spot position.
What happens if price closes at 1.3475? You make $210 on your nadex and are losing $1,000 on your spot.
Do you follow me so far? If yes, then good. If not, then read this again.
Ok SO what happens if I open a nadex >1.3675 and price makes it up to 1.3675 today or tomorrow and doesn’t wait till the end of the week? At this point, your nadex trade will be at a loss of around $290 because when a nadex contract reaches the specified price, it is worth $50. It is only worth $100 or zero AT EXPIRATION.
So if the trade were to skyrocket to 1.3675, you would be up $1000 on your spot and down $290 on your nadex.
Follow me so far?
Now I am currently LONG USD/CAD. I have been holding it since 9/17/2013 and have been collecting premium every day since then. I have collected it up and also collected it down. I just have been choosing expiry times and pips FAR AWAY from the current price and also low volatility times to put on the trades.
I know the ATR on every time frame and if I have a nadex binary that lies outside of the ATR, then it is a pretty good bet that it will not hit during the given time frame. Even if it does hit, I am still OK because I am making money on the spot position. If I decide that if price totally spikes, I may just need to close down everything and do it again tomorrow.
This strategy works during the normal slow ups and downs in the market, during the consolidation times. It is not a good candidate for trending markets in my opinion.
Now if I am long USD/CAD and have been doing this every day, How much am I making so far? For every 1 mini lot, I am making about $10 per day so far. Price on my USD/CAD has been up and down but I have collected every day thus far.
IMPORTANT!!!!! PLEASE UNDERSTAND THAT IF YOU HOLD A PAIR AND IT FALLS 10,000 PIPS, YOU DO THIS AT YOUR OWN RISK AND BLAME ME FOR NOTHING. YOU ALWAYS HAVE TO PREPARE FOR THE WORST.
It only costs about $5 or so (for each minilot) on nadex to protect yourself from catastrophic loss so don’t be an stupy head. I will write about a protective stop loss that is not really a stop loss later. A nadex “stop loss” can hit your stop 100 times and then go in your direction and you will still be in the trade. Thats for another day though.