10 year US Treasuries 2012-08-12

I'd like to talk about treasuries a little bit. I've been studying bonds for a while now. I've been wanting to learn a means of trading them for some time. I feel like I am getting close. However, recent attempts have resulted in semi-failures. Why do I say "semi-failures"? I say it because more recently I have found my overall forecasting to be more frequently on the correct side, but my trade execution is still causing my to miss profitable trades. I haven't given up, but I do take breaks to reflect, sometimes fairly long breaks in watching bonds. Let me be clear, when I talk about "bonds" or "treasuries" I am referring specifically to US treasury notes and in particular 10 year US treasury notes.

There are several reasons why I believe 10 year US treasury notes to be the ideal market vehicle to master. They include trading volume, technical behavior, and the fundamental uses of the underlying product (the t-notes themselves). Firstly, the trading volume of 10 year t-notes is huge. The volume and quantity of money shifted is still less than some index futures, but it is still a very heavily traded product. The bigger the daily trading volume, then the more contracts you can trade without leaving a footprint in the market. I'm no where near a big enough fish to trade enough contracts to make a footprint in any market, but when I do get that big I want to already be savvy enough to trade the larger markets well. 10 year t-notes trade 500,000 contracts a day regularly. I have seen many, many days where volume in this product exceeds 1,000,000 contracts. In this type of trading volume, once could easily trade hundreds, or even thousands of contracts without affecting the overall market. Perhaps you could even trade significantly more if you trade on longer time frames.

Secondly, during the time I've spend watching 10 year treasury notes, I've noticed that the longer term technical charts show certain consistent behaviors. I'm not going to go into details right now about which behaviors, if you want to know what I think about that you'll just have to keep checking my blog periodically and catch the entries as I write them. With this product, its the shorter time frames that I have a lot more difficulty interpreting. I mean the 60 minute time frames. This is why I have so much difficulty executing trades. I make my analysis on daily or weekly charts for this product, but then I try to use the 60 minute charts for entry and I run into trouble because I try and apply the same rules I would use for trading the US dollar index or sugar on 60 minute charts. I am watching semi-passively waiting for a "key" to present itself in my mind. I'm inclined to think that the "key" is just to ignore intraday charts, and adapt my stop-loss rules to the looser daily time frame.

Thirdly, I believe that the very nature of "bonds" can provide very strong insight into the broader direction prices of these products will take. I mean that, in regards to COT reporting, the major commercial players are huge financial institutions. It seems to me that these guys know what's going on in the world stage and plan promptly to take action that will result in them being in the best financial position possible. Is there not a better group upon which to piggy back? Deciphering COT data in this market could prove to be like a "holy grail" of unlimited inbound money flow.

That sums up my long term interest in learning to trade 10 year treasuries. They have volume, technical consistencies, and a strong underlying fundamental nature with strong players. At the time of writing this, I am short term bearish on bonds. I think they still have a few points to drop. I tried to trade this opinion and got stopped out at a loss just before prices dropped. My analysis had proved right, but my execution was that of a bumbling buffoon. There is no way I'm going to quit trying.

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