When traders want to trade the Forex markets on Nadex, there are many ways to accomplish this. You can trade directionally, trade the news or even payoff strategies similar to collecting premium. With the Forex markets on Nadex, you can even do this every five minutes, if you want.
One way to trade Forex is to look at the settlement and deviation levels. To determine diagnostic deviation levels, the implied volatility taken from the price of call and put options in conjunction with the bell curve is used to determine expected moves of the day.
Markets generally have about a 68 percent probability of moving a +/-1 deviation level in a day. They tend to have a very small percentage of moving past a +/-1.5 deviation level and the percentage gets smaller the further away from the previous day’s settlement the market moves.
Understanding deviation levels are very important. The oscillating price movement when the market reaches a deviation level shows how it honors those levels. Therefore, it is important that traders to take this into account when making or planning their trades. When trading, you always want to stack the odds in your favor and this is one way to help you.
When looking at a forex chart, you want to look for the market to make a move to one of the strong deviation levels. Some traders like to see the market moving close to a +/-1 deviation or +/-1.5 deviation level. If the market has been moving directionally higher, and it reaches a higher high that is near a +1 deviation level, which also shows lower volume, it may be an indication the market is about to reverse or stall.
Please do not assume that just because the market has reached a strong deviation level it is time to sell (or buy) for no other reason. It is possible that the market is merely taking a break after a strong many pip move. Also, do not jump into the trade simply because you notice there is lower volume. Furthermore, do not enter a trade because one indicator tells you to do so. Put all of the odds in your favor by looking at many indicators for a combined confirmation.
A huge thing to keep in mind when trading Forex is the news. Awareness of economic news events scheduled for release is important. Several places online can give you an idea of upcoming news of which you need to be aware. Especially when trading Forex, you may have the perfect trade setup and news is released. It will pump some momentum into that currency pair and the market will blow right through your trade. Do not be caught unaware.
Look at what the market has done in the last day, or even in the last few days. Perhaps it has already moved a full deviation level. Maybe the market is even with the highs of the last 10 days and that makes you feel that the market is about to go down. If the odds are stacked in your favor, meaning all of the signals are aligned telling you to place the trade, you might choose an out of the money binary. The result is your risk initial risk will be lower but with a big move your return is much higher on your investment.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.