I’ll be honest, trading at Nadex is not easy. I don’t mean the platform is hard to use, I mean that trading is hard and making money at Nadex is hard if you don’t know what you are doing. I was fortunate enough to have spent quite a bit of time with the platform BEFORE I started trading on it so I was able to get on my feet pretty fast but that does not mean I did not make a bunch of mistakes myself. This is my list of mistakes that I have personally made and learned from and am bringing to you, to help you get ahead of the learning curve and ֿbe successful at Nadex. If you’re not familiar with Nadex yet, check out this How to Trade with Nadex Guide.
1. Rushing Into to Trading Real Money Too Fast
This is the number one mistake, you need to be familiar with the platform before you start putting up real money. This is what the demo account is for. It’s free, it’s unlimited and has no effect on your real account other than to get you ready for the real deal.
2. Trading Too Many Assets
Trading is hard, to say the least, it takes a lot of focus and attention to details as well as quick wits and nerves of steel. Trying to trade too many assets at one time, especially if you are trying to trade short term and/or using the 5 minute and 20 minutes expiries will only cause you to miss out on good signals and even worse, miss out on good selling opportunities for profit taking. I personally prefer the indices because the markets are easier to read but whatever you choose will be fine, so long as you stay focused.
3. Using Too Short of an Expiry
If you are like me and I am sure you are, the allure of fast-action quick-return 5 and 20 minutes binaries is too tempting to pass up but let me warn you, you can lose your ass really fast too. This is why I suggest that you start out with a longer-term expiry. The longer-term expiry, and using the longer term charts (hourly or daily work great) will give you more time to watch what happens with the pricing of the options, as the assets price moves and allow you more time to make your decisions. The end of the day, mid-week and end of week expiry are perfect for this.
4. Being Too “Safe” When Choosing Strike
This may sound counter-intuitive but I recommend you not be too safe when choosing strike prices. By safe I mean choosing strikes that are already ITM or deeply ITM thinking they have a higher chance of closing in the money. They do have a better chance of closing in the money, they also have a better chance of losing more money than you need to. An ITM strike may cost $65 or $75 and give a return of only $35 or $25, less than 55% and less than what an off-shore broker can give. I suggest buying at-the-money or slightly out-of-the-money for better risk management and higher returns. A slightly OTM strike may cost only $45 or $35 for a return of $55 or $65, or a minimum of 120%. The thing to remember is this, if your signal is good there is no reason not to buy an OTM strike, just don’t go too far OTM.
5. Don’t be Too Risky Either
I know, I’ve tried and I do it and will do it again when the time is right, but buying a strike that is too far out of the money is like giving your money away. Sure, the return on an option you buy for $25 or $10 per lot is phenomenal and can reach upwards of 1000% but there is a reason and that reason is a risk. It is likely those strikes will not close ITM unless there is a BIG move in the market. Your signal may good but if it’s not good enough the options will close OTM and you will lose.
6. Don’t Forget About the Spread
One of the differences with Nadex is that all prices are offered in a bid/ask spread. The bid is what people want to pay, the ask is what people want to sell for. If you buy at the market price you buy the ask and, because the bid will always be lower, you will automatically show a loss in your account, even if the option is in the money. The spread changes due to market pressure, so be aware of that too. In a fast moving volatile market, the spread may be tighter, in a slower moving market, it will be wider. What can be scary is that as an option nears expiry the bid/ask can get really really wide, showing a huge loss in your account even if your option is profitable. Finally, when the option gets within a minute or two of expiry, or if the price moves far away from a strike, the market will dry up and there will be no bid/ask spread. My advice, don’t freak out, so long as the asset closes above the strike price you win full payout.
7. Not Taking Profits
Not taking profits when they are in your face is a good way to not make money. If I had closed positions when they were showing a profit instead of holding them to expiry and taking a loss I would be doing 10X better than I am now. All too often a position I hold goes in the money or at least turns profitable, and instead of selling for some profit I hold it to expiry in the hopes of making max profits. I turn from a trader looking to make a profit into a gambler looking for the big score. Think about it like this; say you buy an option for $50 and it goes up to $80. Now you’re showing a profit of $30, it could be $50 but it’s $30 for sure right now. Ask yourself this; is risking the $80 ($30 profit) worth the chance of making another $20? Would you enter that trade right now? Last thought and then I’ll move on. It’s better to make a little profit than a lot of loss. Little profits build up to big gains, big losses wipe you out of the market.
8. Using Limit Orders
Limit orders are a two-edged sword. On the one hand, they can help you get a better price when the market dips and moves on in your direction, on the other they can guarantee a loss when the market moves against you and your order is triggered along the way. My suggestion is to not use them at first, you need to watch and wait for your signals and then enter your trade. Think about this; you set a limit for a strike and the market dips down to fill your order. Then it moves a little lower, making the next lower strike below the one you chose a better position, and then it bounces back the way you thought it would go. This not only means you didn’t get the best price, but it may also mean that your strike is too far out of the money to close profitable.
9. Don’t Throw Good Money After Bad
When trading, especially the short term expiries, and you have one go bad don’t be tempted into opening another position on the same trade. Wait for expiry, wait for the next signal and save your money. The times I’ve tried to reposition, double up on a cheaper price or otherwise trade a second time once a signal goes bad I always lose. Don’t do it.
10. Know Your Market
Don’t just jump into trading and think you can do it. You need to understand what you are trading, follow the news and be able to make real, educated speculation on its movement. When I trade, day trade, I only trade the S&P 500 aka the US 500 at Nadex. This is because the SPX is my jam, it’s what I watch and what I do. When trading the S&P 500 on Nadex you aren’t trading the actual index, you are trading the futures market. This means that you are a third tier market; there is the index, there is the futures market for the index and then there is the binary options market on the futures market of the index. This means that the movements of the prices can have larger, or smaller, swings than the underlying index.
11. Don’t Wait Too Long to Sell
If the price is right and the profits are there, the time to sell is NOW. If you wait the profits could dwindle, if they dwindle it is likely you will lose the whole position. As expiry approaches options that are only at the money or out of the money will quickly lose any profits they have, and any value at all, up to and until the market evaporates and they are worth nothing. So don’t wait, sell now.
12. When you are Bearish, Sell Deep ITM
As you know, at Nadex to open a bearish trade you sell to open and go short one lot. It shows as a -1 in your account, you sell at a high price and want to buy back at a low price. My suggestion is that when you are trading bearish and get a signal go deep in the money. This gives a large return up front, may only risk $25 or less in your account and has a better chance of making money. Remember, when the market falls it falls fast and farther than expected. Take advantage of it.
13. Be Flexible
You have to be flexible and take the market as it comes. Some days the market is moving a lot, volatility is higher and signals are better. Other days are slower and the signals aren’t as good. Knowing the difference and adjusting your trading to match, or not trading at all, is the key to long-term success.