There were a lot of boring markets today. After the ‘old’ 8:30 open, S&Ps had about a 6 point range. For whatever reason, no one was doing much today.
The good news is that volatility tends to be cyclical, and today’s low volatility is often indicates that higher volatility may be coming in a number of markets. (I discuss patterns that identify when volatility is likely to pop, and how to trade these setups here.)
A great example of a market with such a setup is the Treasury Bond futures for today. Below is the daily chart for the March T Bond (ZB_H) futures. Bonds had an inside day today; it was also the narrowest trading range of the pr3evious seven days. Both these are patterns I use to identify breakout trade candidates.
click to enlarge
I drew the blue dashed lines at today’s high and low; I would use these points as entries for a breakout trade – buy a break above today’s high, or sell a break below today’s low. If you’d prefer a bit more confirmation before entry, you could use Friday’s high and low for entries. Farther out, I’d look at 116-31 (50% retracement of the selloff from the Feb. 16 high) as an upside breakout point and Thursday’s swing low at 115-29 down. What we’d be looking for is the break of one of those points to serve as the springboard for a larger directional move.
Range contraction and narrow range low volatility sessions can make for tough trading, but they often have a silver lining in creating the setup for a potential big range move in the following session. Recognizing these setups and knowing how to trade them allows you to take advantage of these situations.
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. 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.
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