Bond Futures, Not Sexy but Worth a Look!

[brownsfan019 17]

Over the years of my trading, I am always looking at different markets to see how my trading style would be doing on other markets in comparison to the US indexes (mainly ES) that I have traded. More often than not it's more of an exercise that simply reaffirms my focus on the ES; however, that has changed recently w/ my study of the bond futures.

 

While recommending a contract is not a one size fits all, I'd suggest taking a look to see if any of the bond contracts could compliment your trading. Personally I have found that I'm getting less fakeouts and shakeouts on the bond contracts in comparison to the ES. So much so that I'm going almost exclusively to the bond contracts while the getting is good. We all know that markets change & you have to adapt to them, but currently (Jan 2009) I'm finding much easier goings in the bonds markets vs. the US indexes.

 

The bond markets I am focusing on are:

10 Yr Treasury Note - ZN

30 Yr Treasury Bond - ZB

On these markets, I have seen the following characteristics:

• Good volume
  
• Plenty of activity starting at 8am EST
  
• Slower pace - easier to get in/out of trades
  
• S/R level respected more
  
• More specifically - my stop levels are holding much easier here
  
• Profit targets reasonable & attainable
  
• Pretty much die off around Noon EST, which means a nice day of trading 4 hours and done for me
  

What I find rather interesting is that I am using the exact same setup on the bond markets and the ES but finding the trades easier on the bond markets. Of course that may change at some point, but right now, it's working quite well.

 

I think the bond markets are often viewed as boring or something only pit traders play, but there's plenty of volume to daytrade and I really like being able to start at 8am EST.

 

Again, it's not for everyone but take a look to see how the bond markets might react based on how you trade. You may find them boring or not conducive to your style of trading, but if you find yourself getting having some aggravating moments on the ES, take a peak.

 

Note - depending on which contracts you look at, the initial price quoting may be a little confusing. Takes a little bit to get used to.

[Kiwi 16]

For those in Europe.

 

Everything that Brownsfan said could well also be applied to the Bund (IB symbol GBL). This is a quietly tradable bond future with excellent depth and more trendiness than the ESTX50 or other european indexes. Price per point is reasonable for most traders.

 

Sadly, trading in the Asian timezone I haven't found an equivalent. Soultrader?

[BlowFish 10]

I called up a GBL chart. I rather like the look of it. It seems smooth and fairly sedate but it does move. Also the volume appears higher than most EU indices (stoxx may well be an exception). Actually a really nice trade set up while I was watching. Maybe that biased me a bit Thanks for the heads up.

[Soultrader 12]

For those in Europe.

 

Everything that Brownsfan said could well also be applied to the Bund (IB symbol GBL). This is a quietly tradable bond future with excellent depth and more trendiness than the ESTX50 or other european indexes. Price per point is reasonable for most traders.

 

Sadly, trading in the Asian timezone I haven't found an equivalent. Soultrader?

 

I would say the Nikkei resembles that of the 30yr bonds. Not necessarily since the credit crunch but prior to it. Excellent depth with minimal intraday swings that could bore a trader to death.

 

JGB's on the other hand is too illiquid compared to the 30yr... and at almost $100 a tick makes it a risky instrument without sufficient capital and knowledge of the markets. You could make or lose $1k per contract in a matter of seconds at times... pretty wild market.

 

Any bond markets down in Aussie?

[Kiwi 16]

The liquidity isn't there James.

 

For asiapac the futures contract ranking from most boring to least seems to go:

 

- Nikkei

- STW (taiwan)

- SPI (aussie)

- HSI (hong kong)

 

with KOSPI probably similar to SPI for range/volatility but much greater liquidity and more intraday choppiness. Lower liquidity does seem to correspond to better trends, perhaps because you can't count on it chopping back and have to get on or watch it go. I find myself unable to trade Nikkei when there are more interesting things around and was trading STW and SPI. Now that I expect ranges to drop again I have added HSI back into the mix and am trading it when a particularly nice setup occurs.

[bobajob 10]

I have been looking at the bond futures too. They are more tradeable without doubt. I am looking to do intraday Market Profile on the bonds. I just wish there was slightly more volatility per day.

[namstrader 10]

I use the ZN for additional filter with the inverse relationship it generally exhibits with the equity indexes. I bet someday I will also migrate to it to trade.

[MrGecko 10]

I trade Bunds (I trade the stoxx too, but only recently) - but having never traded the ES I'm afraid I can't offer any tangible comparisons.

 

Yes, bunds trend well - like any contract it has its own idiosyncrasies, a culmination of the different participants in the market. It used to be a popular contract for locals, but the volumes have fallen away (they are picking up, but still the market is thin sometimes - look at what happened this week).

 

Given the proportion of prop / local traders that are (or were) trading it, you need to keep that in mind when approaching your trades - for example, what might be a perfectly well placed stop in one market is screaming for someone to hi/low tick you in the bunds. Some use the DOM and read the tape, along with the spoofing and the flipping... I have to say I consider negotiating my way through the orderbook and other locals the "coal face" of trading, it can be a very tough market.

 

Market Profile is suited to Bunds and the levels can work well - can't really explain why (perhaps because of the well defined opening hours). It does have its little habits - for example, it likes to start off heading one way, only to reverse at some level and put in a move in the opposite direction (yesterday is an excellent example if this); and getting in on a gap closure trade can be some of the easiest money. Combining these two will usually get you a good trade.

 

In the afternoon, of course, the ZN is something to keep an eye on - but the stocks / bonds relationship has fallen away somewhat... you might like to use it for a bit of colour or context, but its best to keep the Stocks trades in the Stocks markets, and the Bond trades in the Bond markets. You wouldn't want to buy bunds because you thought the stoxx was likely to fall away.

 

Good Luck, I'll be looking for you

 

and your stop

[brownsfan019 17]

Good comments but I have found that for me and my trading, stop placements are HIGHLY respected on the bonds - much more so than the ES. It obviously depends on your trading style, but for me, bonds are very,very technically sound and much easier to trade than the ES IMO (currently).

[Ronin 10]

Have been trading the 30yr Bond Futures ( ZB ) for 14 years now. Agree with Brown but there is more to it. Don't think anyone would be interested because of the " Boring " perception among traders worldwide.

[bobajob 10]

Ronin - do you have any info or resources - or even links to trading bond futures? There is very little emphasis on this on sites about trading.

 

I do have the Bond Basis book, which is technically excellent, but I wouldn't mind a bit of more human experiences described when trading the bond futures.

[brownsfan019 17]

Have been trading the 30yr Bond Futures ( ZB ) for 14 years now. Agree with Brown but there is more to it. Don't think anyone would be interested because of the " Boring " perception among traders worldwide.

 

Hey Ronin! How ya doin?

 

I'm listening if you want to share.

 

[brownsfan019 17]

This is too funny - who's the intelligent trader that rated this thread 1 star? What possibly is so horrible in this thread that you rated it 1 star?

 

:rofl:

 

This site cracks me up sometimes. Next time I'll keep my mouth shut.

[daedalus 10]

Random request... i was wondering if anyone could post up a 1min chart of either of the symbols from the past day or so...

 

I don't have them included in my data package yet and I don't want to pay for them if they aren't gonna vibe with how I trade... If its similar to the es its all good but I just wanted to confirm before I shell out money.

[bathrobe 10]

Here is a 1 min 30 year (ZB) from Monday 2/9

[daedalus 10]

Thats great. Thank you!

[brownsfan019 17]

If its similar to the es its all good but I just wanted to confirm before I shell out money.

 

Beauty is in the eyes of the beholder, but for me deadalus, the reason I really like the bonds is that it's much smoother than the ES. By smoother I mean the moves are measured and where I place my stops can often hold; unlike some days on the ES.

 

Point is that while I personally think it's worth a look, if you are looking for rapid movements like the ES can provide, you may be disappointed. If you are looking for quick moves, watch the bonds during big econ announcements and you'll see when they typically move.

[brownsfan019 17]

Attached are some 1 minute charts of the ZB and ZN

 

 

(note - you could also get a 2 week free trial to OEC's software if you want to pull up the charts w/o paying for the data fees initially)

[daedalus 10]

You're the man Brownsfan!!!! Seriously dude... thanks!

[trader273 10]

what charting software are you using, I can easily send you 1 min data for the past couple of days if your charting software can read it.

[brownsfan019 17]

You're the man Brownsfan!!!! Seriously dude... thanks!

 

No prob. Had a little time last night to grab a few screenshots.

 

You'll note they go from 8am-Noon EST as that's when the moves usually occur. You could trade them all day but the moves and volume die off around Noon EST.

[bathrobe 10]

Brownsfan,

 

Do you recommend TA for trading bonds, or MP, VSA? Also I traded the 30 year for a very little bit and ultimately what made me leave was the large spread sometimes. I would like to go back to the ZB and add the 10 year as well, I like the relationship between the 30 year and ES, which is what I primarily trade.

 

Chris:cool:

[Ronin 10]

The Bond Market has many pecularities and characteristics for example:

 

Significant lows in the Bond market are followed by significant lows in the stock market 20 days later

 

Intraday support is tested several times before complete reversal, in the ES or S&P500 it only happens once, most of the time.

 

On The Payrolls Employment Report many times the expectation Bar are raised or lowered 20% or more and that will be a reliable clue for a reversal of the initial reaction to the report at 8:30 est.

 

The expectation of supply in the Bond Market is a more important mover than many Economic reports, and many times there are subtle but reliable clues to the future reaction of the Bond Market to the upcoming Auctions.

 

Before the FED stops changing direction of Interest Rates, the Bond Market will start trading sideways above or below a key support/resistance level until one day that level will be penetrated and a huge move of more than five full poitns will follow.

 

There are many other price action clues and peculiarities that only with experience you will notice.

[brownsfan019 17]

Brownsfan,

 

Do you recommend TA for trading bonds, or MP, VSA? Also I traded the 30 year for a very little bit and ultimately what made me leave was the large spread sometimes. I would like to go back to the ZB and add the 10 year as well, I like the relationship between the 30 year and ES, which is what I primarily trade.

 

Chris:cool:

 

Chris,

I personally use TA in trading bonds and a fan of candlestick patterns.

 

Not sure how long ago you traded with 'large spreads' but the ZF, ZN and ZB have your standard bid/ask during most trading hours (can get wide during big econ announcements), but the same as the ES in my eyes.

 

As Ronin said - you'll find support/resistance can be tested numerous times before it finally busts through and as a reversal trader, that bodes well for me. First, my stops hold better vs. ES b/c those levels can hold a few times before breaking. Second, if you can anticipate levels holding, you can get aggressive on your entries.

 

The key is screentime of course. What works for me or Ronin, may not work for you.

[bathrobe 10]

Thank you for your help Brownsfan and Ronin.

 

Brownsfan, I was trading ZB on January 16 of this year and the bid/ask was as high as a gap of 6 ticks. Do you recommend a timeframe to start with?

 

Much appreciated,

 

Chris