The U.S. 30-Year Treasury Bond futures have been in a state of flux since the end of July. We track both the raw numbers from the Comitment of Traders reports, as well as the momentum of the participants.
Based on our experience, momentum can mean every bit as much as the raw numbers and momentum is a very useful tool in determining sentiment. Looking at the recent 30-Year Treasury Bond chart makes it obvious that even commercial traders aren’t real sure about what’s going to happen next.
Addendum – Commercial traders continued on the buy side throughout last week. Their support helped fuel Friday’s outside bar key reversal.
Based on growing commercial trader support as well as a constructive chart formation, we are re-entering this trade. We expect Bonds to continue towards the 145-146 level. We’ll place our protective stop at Friday’s low of 140^08.
Our trading is a combination of mechanical programs and discretionary setups. The current play in the bond market is a great illustration of why we use both methods. The setups for both programs follow the same principals.
Step one
- Only take trades in line with commercial trader momentum. This is akin to, “Don’t fight the Fed.”
Step two
- Wait for the market to compress against the commercial trader position, “Don’t catch a falling knife.”
Step three
- Enter the market in line with the commercial traders once the market begins moving back in line with commercial traders’ momentum, “Lift off.”
The setup helps minimize losses by waiting for the market to compress against the commercial traders’ position as our protective stop loss order is placed at whatever swing high or, low is generated by the market’s movement against them.
Finally, the position isn’t initiated until the market begins to move back in our predicted direction.
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To see the above refernced charts, click here.
