Frustrating Bond Trade

[Soultrader 12]

Here's a trade I did today in the 30 year bonds with a horrible execution.

 

2 losing trades.

 

 

The first arrow shows my short entry. Price rallies at the open and is rejected 1 tick away from VAL. The reason for my short was because bonds opened below value.

 

Entry: The price rejection at 111 18/32 was pretty quick and I watched prices auction a for the one 5 minute bar. My tape reading skills in the bonds is still unexperienced compared to the YM and I hesitated and went short with a market order which got me filled at 111 13/32. The moment I was filled, I knew I had made a horrible entry. Normally, I would use a 3 tick stop. But because of my horrible entry I decided to use a 6 tick stop right above the HOD. About half hour later I was stopped out by 1 tick. Approx. 200 contracts trade on a 3000 thick contract ask. I was one of the 200 lots.

 

I then reshorted at the blue arrow labeled #1. I felt better about the entry but had my eyes glued on tape. About a half hour later, I felt prices holding firmly at 111 15/32. I decided to cover for a scratch trade. Shortly after, bonds declined for approx 4 ticks past my entry.

 

A couple of things come to mind. My hesitation on the first trade. My loss on my first trade affected my second trade.

 

I would like to receive some feedbacks. Any criticism is welcome. Thanks

[notouch 10]

On the daily chart it looks like the start of an up trend so weren't you breaching your own trading rules by taking a short? The first hourly candle was bullish too and on high volume so it looks like you paid the price for ignoring your own rules.

 

I personally concentrate on the fundamentals for trading bonds and treasuries, especially on days like today with the weak trade number and expected weak retail sales number tomorrow being bullish for bonds. I didn't trade ZN today but probably will after tomorrow's retail sales number.

[Soultrader 12]

The daily chart looked mixed to me. So I went down to the 65 minute. The chart below shows a 2 day downtrend in the bonds. Hence the reason for a short.

 

 

Yes, I definitely need to be more aware of the fundamentals with the bonds and how they react to numbers. In hindsight the volume spikes of the past sessions shows good support compared to todays volume at the lows.

[nasdaq5048 10]

Maybe tape reading in the bonds isnt as useful as the dow. There are a lot of curve trades and locals scratching contracts that they got from the pit in the bonds. So, hitting the bid might just be the other leg of a yield curve trade.

 

U might want to listen to the bonds squawk and get a feel for what goldman is doing in the pit.

[notouch 10]

What you say about the yield curve is exactly what I was thinking. Unlike the Dow there's no speculative retail participation in the bonds. There's yield curve traders, arbitrageurs, hedgers and long term investors to name a few so how could you make sense of all that from the tape? You have my admiration if you can.

 

I don't agree with what you say about the bond squawk because most of the volume is electronic.

[nasdaq5048 10]

What you say about the yield curve is exactly what I was thinking. Unlike the Dow there's no speculative retail participation in the bonds. There's yield curve traders, arbitrageurs, hedgers and long term investors to name a few so how could you make sense of all that from the tape? You have my admiration if you can.

 

I don't agree with what you say about the bond squawk because most of the volume is electronic.

 

 

 

Bonds squawk are mostly on options and yield curve. Not much outright quotes.

At least u know PIMCO and goldman are huge sellers of puts or buyers of calls, then u can develop a bias. Better than watching the screen's time & sales trying to figure out what the uptick and dntick means.

[notouch 10]

I've never used a bond squawk. I've only ever used the tradersaudio S&P Squawk which I found worse than useless. Do you have any recommendations for a bond squawk and how to use it? I'm not concerned with catching every tick, just the bigger moves.

[torero 10]

James, have you started trading grains yet? I'm watching bonds, but makes me want to zzzzzz...

[nasdaq5048 10]

I've never used a bond squawk. I've only ever used the tradersaudio S&P Squawk which I found worse than useless. Do you have any recommendations for a bond squawk and how to use it? I'm not concerned with catching every tick, just the bigger moves.

 

 

 

Ben at tradersaudio has a bonds squawk. Sign up for a trial and see how it works for u.

 

They used to post all the big options trades at the end of day. Not anymore now. Here is an attachment of the whole 2005 big options trade. U can see for urself whether it has any predictability. But from what i remember, i heard a lot of big boys bidding when we bottom on June 06.

 

But anyway, i dont trade it anymore. I have found little success trading it. The crowd is too professional and not a good day trading market. This market almost exclusively move on reports and has limited range during non-report hours relative to the minimum tick size. I think it is good to position trade.

[nasdaq5048 10]

HEre is the attachment

Bonds Prior 2005.xls

[Soultrader 12]

Thank guys. I need to study this a little more.

 

Torero, I watched the grains a bit but cant figure it out yet. How are they?

[Guest cooter]

James,

 

If you can trade the ES on a purely technical level, without the crutch of market internals, then you can trade the Ags....

 

Just my two and 3/4 cents worth...

[Nick1984 10]

James, have you started trading grains yet? I'm watching bonds, but makes me want to zzzzzz...

 

Grains are really interesting contracts (sorry bit off topic). From a fundamental perspective I like corn contracts because of the larger use of corn production in ethenol fuel.

 

Being an Aussie, I'm looking at metals hmmmmm Uranium!

[brownsfan019 17]

James - my only feedback on that trade was that your short entry was done on a hammer type line. To me, that's either a bullish entry or a reason to not go short. I personally don't care of the bonds as your 5 min chart showed very, very little movement in my opinion. I know the ticks are worth more, but I need volatility and the bonds simply do not have that many days. Perhaps a volume based chart would work better in bonds, just a suggestion.

 

One suggestion James - instead of jumping from the indexes, to bonds, to grains, to metals to the next greatest futures contract, why not stick with one and become a specialist on that one market? Perhaps this is another discussion in and of itself, but one thing I see here is the jumping from one market to the next. Trust me when I say this - changing markets is not the problem and/or solution. I've been there and done that, so please let my mistakes and thousands of dollars save you some time. Become a specialist in one market and then exploit the hell out of that market.

 

I liken it to becoming a highly paid brain surgeon or a general practitioner. You can be a jack of all trades and be ok at those, or be really, really good at one thing. That's how I operated my stockbroker business and it's how I operate my trading business. I learned years ago that you will never be really good at a whole bunch of things, so I suggest becoming an expert in one.

[Soultrader 12]

James - my only feedback on that trade was that your short entry was done on a hammer type line. To me, that's either a bullish entry or a reason to not go short. I personally don't care of the bonds as your 5 min chart showed very, very little movement in my opinion. I know the ticks are worth more, but I need volatility and the bonds simply do not have that many days. Perhaps a volume based chart would work better in bonds, just a suggestion.

 

One suggestion James - instead of jumping from the indexes, to bonds, to grains, to metals to the next greatest futures contract, why not stick with one and become a specialist on that one market? Perhaps this is another discussion in and of itself, but one thing I see here is the jumping from one market to the next. Trust me when I say this - changing markets is not the problem and/or solution. I've been there and done that, so please let my mistakes and thousands of dollars save you some time. Become a specialist in one market and then exploit the hell out of that market.

 

I liken it to becoming a highly paid brain surgeon or a general practitioner. You can be a jack of all trades and be ok at those, or be really, really good at one thing. That's how I operated my stockbroker business and it's how I operate my trading business. I learned years ago that you will never be really good at a whole bunch of things, so I suggest becoming an expert in one.

 

Thank you Brownsfan. Some very good advice. I currently trade the YM and Bonds only. I do agree with specialization but have been interested in picking up a new contract besides the YM, hence the ZB.

 

I took 6 ticks on the bonds this morning. Im definitely going to be trading the YM always but will slowly start learning the bonds.

 

Thanks

[notouch 10]

I don't agree with the specialisation idea. It's probably wise if you're just scalping but for position or swing trading or even day trading when you only make one or two trades a day per contract, diversification is key. If you have good set ups in different contracts and you have say 5 open positions at any one time, it's highly likely that every day will be a profitable day. I trade YM, ZN, GBP/USD and QM but I'm also looking at trading other contracts. I'm planning to add a new market one at a time and once I'm comfortable trading it, move on to the next. Gilts, Eurobunds, FTSE, Stoxx, sugar and corn are on my "to do" list. I've looked at gold and the Asian stock indices and didn't find them to my liking. I'm not saying this is necessarily the best way to trade, just that scalping is not necessarily the best way to trade either. To me the issue isn't whether a contract is fast or exciting but whether I can profit from it.

[brownsfan019 17]

notouch - I would be concerned with information overload with many different markets in front of you. It seems to me that James and a few others here jump from one ship to the next before conquering their first endeavor. And I understand why, I used to do that myself. I think trading multiple markets is a great idea if you can do it, but you first have to be able to trade ONE profitably. If you can't trade the YM, odds are you won't be able to trade the QM, EC, DAX, etc. etc. Yes, there are exceptions based on the market being traded, but I doubt too many of us here have finely tuned trading methodologies based on each individual market. Most probably have their way of trading and then apply it to that market. Assuming that is true, mastering one market before venturing into another is something to consider.

 

I would also add that if you can master an index for example, you can easily just trade that with large size vs. trying to get trades on in 10 different markets each day. I've been content lately with just trading the ES and to be honest, it's much less stressful. I have no liquidity issues and have one chart open. That's kinda nice actually.

[notouch 10]

I agree you need to master one before adding another but you have to appreciate that swing and position trading is very different from scalping. With swing trading you're making one trade and leaving it for a month. Is sitting there staring at the same chart a good use of your time? I definitely agree that for scalpers who need to be watching the same chart from open to close, it makes more sense to increase the number of contracts you trade. For longer term trading though it makes sense to diversify instead of putting all your eggs in one basket.