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Home / Futures Blog / Trading Today’s Breakout Setup in Treasury Bond Futures

Trading Today’s Breakout Setup in Treasury Bond Futures

October 7, 2014 by Scott Hoffman

If a market shows range contraction and / or a lack of directional movement for a given trading session, we have a “breakout setup” for the following session.  For my Swing Trader’s Insight advisory I use a market’s direction of movement for one session to anticipate which direction it is likely to go for the following day.  The lack of directional movement of a breakout setup gives us a separate set of trade setups.

The Taylor Trading Technique is the basis for much of what I do for Swing Trader’s Insight. In a simplified description, if a market trends higher today then we will often anticipate a downward move tomorrow, while downward movement today often means we will anticipate upward movement for the next session.

When a market has a breakout setup, we don’t have the directional cues of a normal TTT day. A breakout setup may occur ahead of a report release (like the financial markets ahead of a monthly employment report) or it may occur for no discernible reason. Regardless of the reason, a breakout setup often is a heads up to anticipate an increase in volatility and a directional move.

Treasury bonds futures had a breakout setup for today. Monday was a doji bar (indicative of a lack of direction) and an NR4 day (range / volatility contraction). Whereas for a normal Taylor Trading Technique signal we anticipate a move in a specific direction, on a breakout setup day we should usually be willing to take a trade in either direction (because of the lack of a directional cue.)

Whether it’s a Taylor Trading Technique or a breakout setup day, the previous session high and low are price levels we should pay attention to.  For a TTT day we tend to anticipate a move to fail and reverse against a previous high or low. For a breakout setup day we look for a move beyond the previous day high or low to be the springboard for a larger move.

For the December T Bond futures we would use yesterday’s high of 139-25 and low of 139-01 as our reference prices- we would go long on a move above the previous day high or go short on a move below the previous day low.  We anticipate the move beyond the previous high or low to be the start of a trend day.

USZ intraday Oct 7

Today’s intraday chart above shows today’s activity. After spending the night session within Monday’s range, bonds broke above Monday’s high shortly after 8 AM. This triggered our long entry; the initial stop loss could go below the recent intraday lows.

Friday’s swing high of 140-01 proved to be resistance on the first run up; it settled back before continuing the rally, eventually reaching 140-16 (previous contract high) around 12:30 PM.

Swing Trader's Insight Essential Reference Guide Cover

Essential Guide for Futures Swing Trading

In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Swing Trader's Insight

About Scott Hoffman

Scott graduated from the University of Chicago in 1986 with a degree in Economics. After graduation, Scott worked on the floor of the Chicago Mercantile Exchange then moved upstairs, serving as the personal broker to a former chairman of the Chicago Board of Trade. There, he worked as a broker and margin manager, starting up the firm’s full service brokerage division.

Today, Scott serves as an educator and mentor for new traders, and as a trading partner and ally for experienced traders. The breadth and depth of Scott’s knowledge make him the “go to guy” for both retail and institutional traders.

Scott also publishes two futures advisories, Swing Trader’s Insight and Trade or Fade. He also writes the futures trading blog at www.futuresinsightblog.com. Scott has written articles for a number of futures publications and has done numerous futures trading seminars, including seminars for both the CBOT and CME.

Scott offers his customers the knowledge he has gained from his more than 25 years of experience in the futures business. Scott is accepting new clients at this time.

Scott lives in suburban Chicago with his wife and three children. In his free time he enjoys coaching his children’s sports and various other athletic activities.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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