Nadex - Take Profits

constantinos · November 5, 2013, 9:28pm

Let me know if I am missing something in one of your earlier videos or an older thread, but what is a good strategy for placing a take profit order in both binaries and spreads.

For a while I was doing binaries that had a risk of something like $10 to $20, and instantly putting in a sell order of $50. I figured that was the easiest way for me to get in with a low risk and have an exit point.

Is there a strategy anyone uses to implement something similar with bull spreads. I’ve used the box and binary scanners, so I feel comfortable finding a trade to get into. However having a strategy of where to get out is my problem.

Example: Today I risked $10 on a US Tech 100 bull spread. I didn’t have a take profit order in place, I just thought I would ride it until expiration (I’m doing this in the demo to get a better strategy). At it’s highest point I was up $3/per contract, however when it expired I only made .50. I had 10 contracts.

What should I have done differently?

-Alex

dca78_00 · November 5, 2013, 11:04pm

Alex - it doesn’t sound like you are following a strategy…putting a low risk trade on and hoping that it hits the profit target is kind of like throwing a dart at a dart board. If you are using the APEX strategy on spreads, you enter when there is a valid entry and you get out when one of the trailing stops is hit. You have a defined reason for getting into a trade and you let the market take you out…

On binaries, if you get in an OTM spread, generally you try to get out at $43/57. Remember that you need a really good reason to get into an OTM trade, there is a reason they are cheaper…much lower probability of expiring ITM. The only take profit on binaries, really, is to place a take profit on an ITM binary (say buy at $75), and then you put a sell order to close the position at $97 (look at the price ladder to see what is reasonable, instead of waiting to expiration.

Hope this helps… Brad

constantinos · November 6, 2013, 12:19am

I think I’m a bit more of hands off trader than the Apex system allows. I’ve been trading US 500 binaries, I’m more familiar that market. I’ve been using the deviations chart to make trades.

I haven’t been hoping that it expires in the money. My “strategy” has just been that it hits the $50 and I am out. I’ve also been using technicals to decide if I think the market is going up or down and where I want to get in.

The spread example I gave earlier was actually in the money.

To be honest your comments seem to be completely contradictory to all of the videos of Darrel’s I’ve watched where much of his discussion is on finding low risk/high reward trades. I am trying to find those with low risk, but what I’m struggling with is when do I get out, and can I put in a take profit order right after I have got in on a trade.

-Alex

dca78_00 · November 6, 2013, 1:44am

Alex - I could only go by what you had written, now that you have written back I understand a little better. If you are using technicals then that is your method and that’s fine. In the case of binaries, if your technicals tell you to go long, and you are buying OTM ($50 or less risk) then the only things you know are:

since it is OTM, it has to move in your direction before expiration and expire ITM to be profitable.
if the underlying (US 500) crosses your strike price, then the value of that binary is roughly $50 (bid/ask spread)
if it doesn’t move in enough in your direction, then it will expire worthless.

So, what you would have to figure out is what percentage of the time (according to your technical signals) are your signals successful…

Instead of going for the $50, it may be better to only go for a single or double… meaning if your signals have a high percentage of movement in your direction, then take profit at $20 if you bought for $10. That might occur much more often than going from $10 to $50.

When you look at binaries, when you are paying $10 for an OTM, it is essentially saying that there is only a 10% chance that that binary will expire profitable. Most times, it is actually better to buy an ITM binary. Sure it costs more, but you have three scenarios to be profitable which equates to higher probability of expiring profitable .

On an ITM binary, the underlying can do all of the following and be profitable:

It can move in your direction (up in the case of buy, down in the case of sell)
It can do nothing, stays at the same level
It can even move against you as long as it doesn’t cross your strike level

On an OTM binary, the underlying can do all of the following and be profitable:

It has to move significantly and cross above your strike on a buy or below on a sell

When talking about low risk/high reward, it is more that there is a lower risk that the trade will go against us (i.e there are 3 scenarios that we can win on an ITM binary vs only 1 scenario we win in an OTM binary). The risk is not necessarily the amount of money we put up for the trade.

On spreads, if you are looking at kind of a hands off trade, look at the news trades using spreads. These are pretty much hands off. You can put the trade on when the news calendar tells you, put in your take profits as dictated by expected move, and then let it go.

I hope this helps. I have been trading this system off and on for about a year, and trading in general for 10+years… This is by far the best learning and trading environment…people here are here to help others out.

Happy trading!!! Brad p.s. Here “http://apexinvesting.net/forum/other-trading-systems-98/potential-apex-otm-binary-trade-system-using-deviation-levels-517.html#.Unmd6uhDt40” is a strategy that I have been working with Darrell on. Notice how it originally started out as an OTM binary strategy and is now an ITM binary strategy. And even now, there is a portion I am going to test that is going to go back to OTM… That’s the great thing about these binaries… there are a lot of different ways to trade them…but you have to know the probability of success in order to figure out the profitability…

constantinos · November 6, 2013, 4:59am

Thanks, lots to think about!

-Alex

darrell · November 6, 2013, 7:26pm

Note 43/57 is wiser than just $50 as you need to account for bid/ask spread and give yourself some wiggle room - if you get filled at 50 that means it went higher/lower than your strike.

The apex system can be applied in a lot of ways. I know guys that trade just 30 minutes to an hour a day using it.

I believe on the spread example the issue is just holding is is what he was referring to as no strategy. Also note that NQ spreads are horrible (except for they are low risk so good for newbie) but beyond that they tick super slow - so they have low risk and low payout - they tick in whole points whereas the nasdaq ticks in .25 - so if the nasday moves 10 points - the most you would make would be $10 - subtract 2.00 bid ask spread and fees and after a 10 point move on NQ your up $7.00 - again its good for newbies, those with small accounts, someone wanting low leverage - but beyond that better of with es, ym, tf…when trading indices using the spreads

[quote=constantinos]Is there a strategy anyone uses to implement something similar with bull spreads. I’ve used the box and binary scanners, so I feel comfortable finding a trade to get into. However having a strategy of where to get out is my problem.

Example: Today I risked $10 on a US Tech 100 bull spread. I didn’t have a take profit order in place, I just thought I would ride it until expiration (I’m doing this in the demo to get a better strategy). At it’s highest point I was up $3/per contract, however when it expired I only made .50. I had 10 contracts.[/quote]

You could also use deviations etc… as a take profit level on the spreads… but you have to have an exit plan you can’t just get in and hold to expiration as you will allow winners to become losers…

On binaries…If you keep watching my videos and get into the more advanced ones on binaries you will see i do a lot of ITM trades - check the bonus webinars section out as they are actually good risk/reward trades if you manage the stops and they have a higher probability of profit as they start ITM so the market can move in your direction, stay flat, or slightly against you and you still profit.

[quote=constantinos]I think I’m a bit more of hands off trader than the Apex system allows. I’ve been trading US 500 binaries, I’m more familiar that market. I’ve been using the deviations chart to make trades.

I haven’t been hoping that it expires in the money. My “strategy” has just been that it hits the $50 and I am out. I’ve also been using technicals to decide if I think the market is going up or down and where I want to get in.

The spread example I gave earlier was actually in the money.

To be honest your comments seem to be completely contradictory to all of the videos of Darrel’s I’ve watched where much of his discussion is on finding low risk/high reward trades. I am trying to find those with low risk, but what I’m struggling with is when do I get out, and can I put in a take profit order right after I have got in on a trade.

-Alex[/quote]