Today’s T Bond Trade

I had a few people ask about today’s T Bond trade, so I thought I’d write up a post mortem to give some insight into my thought process.

Below is a daily chart for the March Bonds.Today was a momentum sell short day. The bottom panel of this chart is the two period momentum I use for this.Yesterday’s rally pushed momentum above the zero line, which it hadn’t seen for days.This push meant we should be looking for a reversal in momentum and price today.In addition, yesterday the market closed at the very top of the range, another indication that we should be looking for a potential reversal in direction today.

Daily T Bond Futures Chart-Click to enlarge

I was watching bonds early in the session; they went up and tested yesterday’s high but didn’t see any followthrough. On the intraday chart below, notice the support at 13026.5.Given that I was looking to short, the odds favored downside followthrough if that low was taken out.I especially liked the idea of getting short, and hopefully out, before the FOMC announcement.I had an order working to sell short at 13025 stop, to get pulled in as the low was taken out.I set the initial stop at 13104, and I had an initial target of 13000 (a 50% retracement of the rally from Monday’s low to today’s high.After entry and subsequent decline I lowered the stop to 13002.Given that the FOMC announcement hadn’t yet come out, I was looking to tighten the stop up to cut down on risk.For this trade I wanted to wait to get stopped out rather than use a profit target; if I had stayed in through the announcement, there was the possibility of a bigger profit, especially given the downward bias today.I got stopped out before the announcement, so I was able to spectate for the fireworks.The daily chart is an interesting one.Monday’s low of 12814.5 held, but the big U-turn reversal is bearish.