In last night’s edition of Swing trader’s Insight I labeled the Treasury Bond futures as having a breakout setup for today. Although it didn’t meet my normal criteria for a breakout setup, the fact that it had relatively direction trading on Tuesday (setup) when combined with Fed Chair Yellen’s Congressional testimony (a likely catalyst for a move) made a breakout move a high odds trade today.
Sept. T Bond futures did have a breakout setup for Monday as Friday was an inside day with the narrowest range of the previous seven days. Tuesday’s range was one tick larger however it essentially stayed within Monday’s range and was within the Friday range. Two consecutive days of narrow range, directionless trading set the market up for a directional move today.
Bonds were strong early this morning, trading above the Tuesday high (our first upside breakout level) to make a session high of 152-12. As we moved into the morning it dropped back below the Tuesday high in advance of the release of Janet Yellen’s prepared statement and subsequent Q&A.
Yellen’s comments were released at 7:30 AM CT and were taken as dovish (she expects gradual rate hikes and stated that rates won’t need to rise much to reach a neutral level). This led to a strong rally in T Bonds, which quickly rallied above the two upside breakout levels.
This rally pulled us into long entries (I like to enter with a stop order a few ticks above the reference price level). The initial stop loss could go either below the 7:30 AM low of 152-06 or the previous overnight low of 152-01.
Bonds quickly rallied, reaching a session high of 153-03 within about a half hour. At this time we would look to take profits or tighten stops – they were up about a full point from the Tuesday close, and anything Yellen said in her testimony would be more likely to cause profit taking than an extension of the rally.
Essential Guide for Futures Swing Trading
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