In this morning’s comments for Swing Trader’s Insight I pointed out that the T Bond futures had a breakout setup. It broke out to the upside and made a steady rally over the session, giving a good slow motion (for a breakout move) trade.
The pattern for today’s breakout signal wasn’t a traditional range contraction / volatility squeeze. Rather, the nearly identical trading range and opposite direction – open < close on Monday, open > close Tuesday showed the same kind of indecision that is indicated by range contraction.
As with any breakout setup, we anticipate that the trendless conditions of the setup will result in a directional move as traders buy or sell to move the market toward a new “fair value” level. I like trading these breakout setups because we don’t have to predict which way the market will move. Rather, we let the market decide which way it wants to go and we go along for the ride.
For today’s T Bond breakout trade, the upside level to watch was the Tuesday high / double top at 154-08. As it was a double top, it was a significant price and a move above it could start a positive feedback cascade move higher.
The trigger level was first taken out at 7:30 AM. It then dropped back down and held exactly at the last low of 154-02. Placing stop loss orders just below here was the logical level to limit risk.
The bond rally gained steam as the session wore on, helped higher by the stock market selloff. Patience was rewarded as by 3 PM they reached the Fibonacci retracement level at 154-31 (see the daily chart).
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.