Potential Apex OTM Binary Trade System Using Deviation Levels

S10 - Systems - Advanced Nadex Trading Strategies other trading systems
21

Darrell - I finished up testing for the 4 US indices. The results are impressive.

I did the original C trade, as well as your recommendation (called it C prime).

The C trade is triggered when there is a valid APEX E bar breakout entry within +/- 25% of the daily expiration strike width of a half deviation level (1.0, 0.5, Settlement, -0.5, -1.0, etc.). The trade consists of the trigger, and then selling a daily ITM binary (4:15 expiration) a half deviation above a Green APEX and a buying an ITM binary (4:15 expiration) a half deviation below a Red APEX.

The C prime trade (your suggestion) is doing the opposite when the trade is triggered. So, when there is a Green APEX, we buy the ITM binary (4:15 expiration) a half deviation below the trigger. On a red APEX, we sell an ITM binary (4:15 expiration) a half deviation above the trigger.

The ranges I used around the deviation levels were: Wall St 30: +/- 5 ticks (daily expiration width is 20 ticks) US 500: +/- .75 ticks (daily expiration width is 3 ticks) US Tech 100: +/- 1 tick (daily expiration width 4 ticks) US Small Cap 2000: +/- .5 ticks (daily expiration 2 ticks)

Here are the results from 8/9/2013: YM C trades: 36/36 = 100% C prime: 32/36 = 88.9%

ES C trades: 12/19 = 63.2% C prime: 18/19 = 94.7%

NQ C trades: 24/27 = 88.9% C prime: 24/27 = 88.9%

TF C trades: 32/42 = 76.2% C prime: 36/42 = 85.7%

I am also trying to codify how the trades progressed after entry with regards to premium. I want to see what premium looks like tomorrow with the jobs numbers coming out. Then I will be able to figure out what the possible profitability might be.

I have all of the charts if you want me to add them


I will continue to add data each week


Thoughts?

Thanks, Brad

22

Is this 24x7 or just certain times of day

Definitely add them - very cool - yes now the thing is to track premium - you can use snag it to capture screenshots ie of the scanner every 15 minutes if you want to help on this - free trial at techsmith.com

So now we got the % (probability down) - now we just need the profitability

23

This is just from 8AM to 4:15 (US Market). Trying to keep it as rules based and defined as possible.

I’ll add the charts and a spreadsheet later tonight.

Brad

24

Was friday YM on C trade valid? It closed above the .5 stev level.

25

I haven’t done this weeks trades yet so I can’t answer that. Note - I am NOT trading this yet, still gathering data. I will put the results up tomorrow.

26

Kfegan - went and looked at Friday on YM, I didn’t want to leave you hanging till tomorrow. There was no trade yesterday (simulated, not live). There was no 3 tick breakout within 25% of a half deviation level (-0.5, Settlement, 0.5, etc
)

Even though it is 100% so far, it is a small sample size. I am working with Darrell to figure out profitability. So, I wouldn’t trade this live yet.

But, you can absolutely follow along and if you see something that might work better, chime in!!! Help is much appreciated.

Happy Trading! Brad

27

Thanks for the follow-up Brad. I see what you mean. The ‘E’ bar I was referring to was @ 9:30:33, but it was outside the 25%. Keep everyone posted. Looks pretty interesting.

28

DO NOT TRADE THIS SYSTEM, STILL IN TESTING

(data thru 9/13)

YM C Trades - 37Wins 37 Trades 100.0% (22P, 4SP, 11LP, 5 reached, 0 losses) YM C’ Trades - 33Wins 37 Trades 89.2% (13P, 3 SP, 17 LP, 11 reached, 4 losses)

TF C Trades - 36Wins 48 Trades 75.0% TF C’ Trades - 42Wins 48 Trades 87.5%

NQ C Trades - 27Wins 30 Trades 90.0% NQ C’ Trades - 27Wins 30 Trades 90.0%

ES C Trades - 13Wins 19 Trades 68.4% ES C’ Trades - 18Wins 19 Trades 94.7%

Darrell(and others) - above are the updated numbers through 13 September.

I am struggling now with how to figure out profitability. Can you let me know if this is the right path on my explanation below:

The underlying can do essentially 4 things when a trade is signaled.

  1. It can stay near the level that the trade was triggered and not move in any direction. Here “http://www.screencast.com/users/dca78_00/folders/YM/media/a5c6a6fd-7058-4373-b78b-2f68027cbc58” is an example of that. IF that is the case, there would be little premium left in the trade, which I am calling LP for profitability purposes. In the example, trade 2 is at the -.5 dev level so we are buying a strike near the -1.0 dev level, and the underlying never makes a real move towards are target giving us more premium.

  2. It can move in the desired direction, but not more than .25 deviation. Here “http://www.screencast.com/users/dca78_00/folders/YM/media/d114482b-099f-4577-81b9-959b5528cb59” is an example of that. If that is the case, there would be some premium left in the trade, which I am calling SP for profitability purposes. In this example, trades 31 and 32 the underlying moves towards the target strike, but less than .25 dev.

  3. It can move significantly in the desired direction, at least .25 but not cross the trade strike. Here “http://www.screencast.com/users/dca78_00/folders/YM/media/21b16554-0ebd-4618-8e5f-d5228f042a01” is an example of that. If that is the case, there would be premium left in the trade, which I am calling P for profitability purposes. In this example both of the trades were classified as P trades as the underlying moved significantly towards our trade strike, well over the .7 dev level but not cross target strike.

  4. It can move past the trade strike, and expire OTM which I am calling L for profitability purposes.

I have also captured data on which trades “reached” the trade strike area. This is to determine how many trades would have been closed if the underlying hit the strike price (it is approximate as I can’t possibly figure out all strikes to pick from). I consider it reached if at any point before expiration the underlying touches the 25% strike width range (orange box on chart). Here “http://www.screencast.com/users/dca78_00/folders/YM/media/b5a9cd7e-406c-4ef4-b76c-fd2679f4283f” is an example of that. For trades 14 and 15, the underlying came close to reaching the orange box but didn’t cross into it (around 1408) Those are classified as P trades. On the other hand, trade 16 did cross into the orange box (around 1450) so that would be classified as reached.

If this methodology is right, then how do I figure out an average price for each of the levels? The price will change depending on the time of day, and how volatile the day is expected to be (larger distance between dev levels), right? I can’t go back and figure out what the strike price would have been on a specific day. I have taken a few data points on YM to see what it would be:

  • On LP trades, there could be anywhere from $3-14 premium (profit potential) left in the strike. I averaged to $10 premium.
  • On SP trades there could be anywhere from $12-20 premium (profit potential) left in the strike. I averaged to $15 premium.
  • P trades are a little different as they can be anything from about $20 of premium (profit potential) to total loss if it expires OTM. When I looked at how much the profit potential is when the strike is halfway between deviation levels is $25.

Doing a little rough calculation (it is much easier when the probability is 100%), here is what I came up with using the above numbers:

On YM C trades, there were 37 total trades, 22 P trades, 4 SP trades, 11 LP trades, 5 trades reached, and 0 losses.

There are 2 ways to play this trade. One is to stay in the trade, and the other is to get out when the underlying reaches the target strike. Each way can then be taken two ways. One is to layer in trades with 3 working orders to try and catch the different levels, or just place one working order for $25 profit potential.

So if I stayed in the trades:

  • Layering trades= (22P trades * $25 profit potential)+(4SP trades * $15 profit potential)+(11LP trades * $10 profit potential)= $720
  • Just $25 trade= (22P trades * $25 profit potential) = $550

So if I exited at $50:

  • Layering trades = (22P trades * $25 profit potential) + (4SP trades * $15 profit potential) + (11LP trades * $10 profit potential) - (5 reached * $25 P trade risk) - (5 reached * $35 SP trade risk) - (5 reached * $40 LP risk) = $220
  • Just $25 trade = (22 P trades * $25 profit potential) - (5 reached * $25 P trade risk) = $425

I hope you can follow my thought process. I only focused on YM C trades (in direction of APEX) for this post to see if I am going in the right direction, but I did the YM C’ trades as well (against APEX direction). They don’t look as good


I will send the spreadsheet in a help ticket to add to the post.

If I am on the right path with methodology, then I will go back and do the rest of the indices. There is a reason I trade spreads, they are much easier to backtest!!! Thanks for all the help, Brad

DO NOT TRADE THIS SYSTEM, STILL IN TESTING

29

Here are the links to the folders I put the marked up charts with trade numbers, so you can look at them. Thought it would be easier than adding all the charts


YM “http://www.screencast.com/users/dca78_00/folders/YM”

TF “http://www.screencast.com/users/dca78_00/folders/TF”

NQ “http://www.screencast.com/users/dca78_00/folders/NQ”

ES “http://www.screencast.com/users/dca78_00/folders/ES”

Brad

30

The simplest way to figure it out would be to just take an average. Ie use snagit - set it to take a screenshot every hour etc
 using the scanner do this for a week average out the cost based on distance from underlying and hours till expiration this will give you a good model on what to use dont’ worry about IV fluctuation - this should be close enough for a working model

31

Here is the uploaded XLS from the test: http://apexinvesting.com/wp-content/uploads/2013/09/UPDATE-INDICES-TEST.xlsx

32

Got it, I’ll start on that. I just wanted to make sure I am on the right track for profitability testing.

Brad

33

Hi Brad, how is the testing going? Ive been interested on trading according to deviations


can you give us an update on your strategy?

34

It’s going well readvpost c everything is there

Note this is not just deviations it is apex w deviations

Using deviations for strike selection

35

DO NOT TRADE THIS SYSTEM, STILL IN TESTING

So, I have been a little busy, but I have managed to figure out the probability and profitability for YM (Wall St 30) through 4 OCT.

Here is the probability: YM (Wall ST 30) - through 4 OCT:

C Trades - 56 wins, 3 losses (94.9%) (30P, 4SP, 22LP)

  • As a reminder, a C trade is buying a strike .5 dev below a qualified Red APEX entry within 25% of a deviation level, or selling a strike .5 dev above a qualified Green APEX entry within 25% of a deviation level

C Prime Trades - 55 wins, 4 losses (93.2%) (16P, 6SP, 33LP)

  • As a reminder, a C Prime trade is selling a strike .5 dev above a qualified Red APEX entry within 25% of a deviation level, or buying a strike .5 dev below a qualified Green APEX entry within 25% of a deviation level

I categorized each trade as to how far it moved in the desired direction (equals more profit potential) so I could estimate profitability. I broke it down into 3 types of trades: LP Trades - these are trades that don’t move in the desired direction and essentially stay around .5 deviation from our strike price SP Trades - these are trades that move some in our direction, but less than .25 deviation P Trades - these are trades that move well in our direction, .25 or greater

Here “http://www.screencast.com/users/dca78_00/folders/Jing/media/5998c179-ec36-49b3-b2dd-192e0f3a5544” is a chart depicting the different trade type ranges.

To figure out profitability, I averaged a weeks worth of hourly prices for the above types of trades and came up with the following: LP trades - AVG Risk is $88.50 (AVG Profit $11.50) SP trades - AVG Risk is $79 (AVG Profit $21) P trades - AVG Risk is $69.50 (AVG Profit $30.5

Then I tested two management strategies with two options each. Strategy 1 is to place the trade and stay in the trade regardless of what it does. Strategy 2 is to exit the trade if the underlying reaches the strike level we bought/sold. Option A for each strategy is to place a single trade for $25 profit potential (buy 75, sell 25). It would be a working order that would fill sometime during the day, it makes it a 1:1 trade if we get out, and it would fill commensurate with the P trades. Option B is to take the average price and layer into the trade (i.e. place 3 orders at the LP, SP and P risk) So, when the trade triggers and you are buying, you would place one order to buy target strike at $88.50, one to buy the target strike at $79, and the last to buy target strike at $69.50.

Using the previous methodology and calculations, here is what the profitability is:

C Trade Profitability Strategy 1 - Stay in trade Option A - Single $25 trade: $525 profit Option B - Layer trades: $541 profit Strategy 2 - Exit trade at $50 (underlying hits strike price) Option A - Single $25 trade: $500 profit Option B - Layer trades: $382 profit

C Prime Trade Profitability Strategy 1 - Stay in trade Option A - Single $25 trade: $100 profit Option B - Layer trades: $45.50 profit Strategy 2 - Exit trade at $50 (underlying hits strike price) Option A - Single $25 trade: $75 profit Option B - Layer trades: -$137.50 profit

I looked for news or Treasury/FED actions that may have affected the losses, to see if there was a filter that could be used. Some of the days had no significant news, and others had significant news. Some had Treasury action or FED action, and others did not. So, I don’t believe that there is a news filter to use. Additionally, there were plenty of winning trades that had combinations of significant news and FED/Treasury actions.

I will send the spreadsheet separately


I updated the YM folder with the new charts


Darrell - if you see anything wrong let me know


Hopefully, this week I can finish up the other indices.

36

CHEVA 282 - Just added an update (Post #35)
hope you enjoy! Brad

37

This is an AWESOME work Brad! for some reason I still cant understand how the strategy works
 seems like Im still too new for Nadex
 (Ive been fxspot trader for a few years)

I will re-read the whole thread to see if I can understand
 lookng forward to help you on this journey as I think dev levels combined with APEX is a mortal superpowerful weapon not even the Military forces have :slight_smile:

thank you for all your work so far, keep it up!

38

CHEVA - it has kind of morphed from what it was originally. Essentially what I am testing is:

On a Green APEX, with a valid 3 tick break of the E bar, if that entry is within 5% of one of the half deviations (Settlement, .5, 1.0, -.5, -1.0, etc.) you are looking at selling a strike .5 deviation above the entry signal for the C trades. So, if you get an entry within +/- 5% of settlement, then you are selling a binary strike within +/- 5% of the .5 deviation. For the C prime trades, you are looking at buying a strike .5 deviation below the entry signal.

On a Red APEX it is just the opposite. The C trade would buy .5 deviation below. For the C prime trade, you would sell .5 deviation above.

Basically, the C trades are with trend, and the C Prime trades are counter-trend.

Please keep in mind that so far this works well on YM, but not so well on the other indices. I wouldn’t trade this system live yet, until Sensei Darrell tells us that this is good to go.

If you have suggestions, feel free to modify and test and tell us here how it goes!!!

Happy Trading!!! Brad

39

Ok I understand now its clear, the thing that I still dont get is you say C trades are with trend But if on a Green APEX, you are selling a strike above the entry signal, should it be a counter trend trade?

40

Yeah
 I see what you mean
what I mean by with trend is that the C trade is as far as the trend is expected to go, the C Prime is far as it is expected to go against the trade signal


Thanks for the added eyes
it will help when this is ready to go on things that I need to explain better.

Brad