DH7 Trades the Bond Futures

[darkhorse70]

Ok, so I didn't end up making the pass through to Propex. Bummer I know but whatever. Frankly I don't have the same faith in the system as I once did. What I mean by that is that I believe willing your going to put in the time and always have the mindset of trying to improve, there's no reason why you can't become a great trader on your own.

Whether this is true or not, I need to believe so if I'm going to succeed at this.

Anyway after trying to trade the way I was taught at Alioms for 6 weeks, I concluded it was impossible due to the commission fees. Trying to scalp when you've got the chance to scratch out of several trades before you score one tick will eat your profits away taking you closer to a negative expectancy.

Anyway while trading under Propex's guidance during the recruitment phase we were trying to spread trade US and Aussie bonds. Every one knows there is a correlation between them and there are several correlations between the equities, bonds etc.

Anyway as the weeks passed I realized my performance was constantly improving.

So I thought i'd give this a shot on the sim before hopefully taking it live in the next few months.

Basically I use the e mini and the t notes plus aussie bonds as confluence for setups. Using a combination of market flow and the short term structure of the market, I scalp small setups and some times hold for a few points.

I prefer a smooth equity curve so taking small consistent profits just works well for me.

 

[darkhorse70]

Like TH mentioned in another thread, Q trader which ill be using doesnt really have the means to track stats. Ive created a basic spread sheet to track my performance. Basically the most important thing for me to understand is, when are my scalp trades most reliable (in what market conditions). By figuring this out, I can eliminate trading days where I know I shouldnt be scalping. For example a strong up trending day some times see's me get whipsawed all over the place. If I scalp, I usually trade back to value which has worked well so far.

I also have a formula to spread trade between the 10 year aussie bonds and the 10 year notes so im going to be focusing on that as well. This will allow me to trade it when volatility is really and reduce my risk exposure.

I've come to the conclusion that in order for me to succeed in this industry and make a living, Im going to have to eventually start managing money for other people. This requires me to understand the concept of risk at an extremely high level. Understanding how to hedge against risk when volatility increases or before a figure is released is one of my learning priorities for the year.

I know how to hedge up but different markets move apart depending on micro economic conditions so I need to develop strategies to minimize my risk.

 

[darkhorse70]

Although I use charts, I dont worship them. I don't use any sort of EMA or any formulas. I only have volume, ATR and my candlesticks. The candle sticks only consist of a 30/60min and a daily. I might use a weekly for better reference when need be.

Honestly apart from what happened yesterday and the past few days, I really don't take notice of the bigger picture. I only become cautious as markets approach important levels (support/resistance).

When I trade, I try to visualize the positions of people hurting. This allows me to trade people covering positions and usually when people start covering, the market moves temporarily.

Using the price ladder/DOM is crucial for me. Understanding the current flow of the market is huge. Flow of the market is constantly changing but each day,hour etc has its own personal character and that's when you really get an edge.

I'm going to trade from 11am till possibly 12am. Trading the notes is very very slow. It's not unusual for the market to move a few points in several hours so once your in a position, its time to wait. That being said I'm usually out after 1 point or 2. This might happen twice a day or so.

My q trader account will be up and running tomorrow again. Unfortunately I dont have the sim mode either so my buys/sells will be screen shotted and posted immediately for proof.

I plan to trade 2 lots with a possible max size of 4. My hypothetical account size will be $20,000.

 

[darkhorse70]

I had to make this equity curve as again, q trader doesn't provide those options. From tomorrow on, Ill be continuing the equity curve on a daily basis. Hopefully it provides some value to ya'll.

 

[darkhorse70]

This is a screen shot of my setup. Ill be adding some currencies, possibly the spi, asian markets and hopefully some euro markets.

 

[skc]

I plan to trade 2 lots with a possible max size of 4. My hypothetical account size will be $20,000.

I don't know too much about bonds... but this account size seems very small (even for sim) for bonds?

Take a look a few recent market dislocation events and see if your account is big enough not to be wiped out. I can guarantee you there'd be a few of these events in 2016.

Nice thought out post otherwise... best of luck.

 

[darkhorse70]

Thanks for the input SKC. As far as I was aware the ATR has roughly been around 17 points. I'll have to sift through the charts today and see how its moved through out the last few years. Per tick on the US T Note was is $15USD.

So per point is around 30$USD.

I usually risk a few points at times but I usually trade with a rough stop loss in mind contrary to popular advice. The way I see it is as things unfold, more information is presented and if things are going south and don't seem to be exhausting then I get out.

Thats my strategies only downfall. Taking one or two big losses once in a while which ill have to manage better.

Ill go through the charts again tonight and see what the swings are like during volatility though. Thanks

 

[CanOz]

Thanks for the input SKC. As far as I was aware the ATR has roughly been around 17 points

I've got handy range indicator that you can use to tell you the average daily range if you want it DH...

 

[skc]

I've got handy range indicator that you can use to tell you the average daily range if you want it DH...

Not the daily ATR... but what happens during a market dislocation event?

Doing spreads is like writing insurance... you collect small, steady premiums in sunny weather... but you have to know the loss you will payout in the next storm. You can't look at the daily average rainfall to calculate the risk of flooding and associated claims.

Thanks for the input SKC. As far as I was aware the ATR has roughly been around 17 points. I'll have to sift through the charts today and see how its moved through out the last few years. Per tick on the US T Note was is $15USD.

So per point is around 30$USD.

I usually risk a few points at times but I usually trade with a rough stop loss in mind contrary to popular advice. The way I see it is as things unfold, more information is presented and if things are going south and don't seem to be exhausting then I get out.

Thats my strategies only downfall. Taking one or two big losses once in a while which ill have to manage better.

Ill go through the charts again tonight and see what the swings are like during volatility though. Thanks

$15 per tick? That sounds tiny.... I thought bonds have massive face values and large tick sizes. Shows my ignorance.

 

[CanOz]

Not the daily ATR... but what happens during a market dislocation event?

Yeah, but this is quite handy to go through the history and check out how events (eg. better than expected unemployment rate, China surprises) affect the bonds. You can see the daily range as well as the average...

 

[CanOz]

This is just handy to show what the daily potential of the market might be like, but you can use it to see what ranges do when they blow out....I like it better than an ATR, which is ok for a general idea of volatility.

 

[darkhorse70]

Thanks Can, ill pm you for the indicator.

SKC I think each account full point is $1,000USD but its divided into 1/32.

So 1 point is 30$USD X 32 If im not mistaken.

I should have been more clear. Currently I outright trade the t note but I have done a few spread trades either going long or short the 10:10.

I see the potential in them.

In terms of dislocation, you are right. I heard one of the senior traders sayign how the spread between the bond markets were insane during the gfc before any one new what was happening. People kept averaging into positions and eventually got blown away.


That's also the great thing about spreads, You can average into them if im not mistaken and if things aren't really out of whack, you increase your odds.

I know there's a formula which tells you which market should go bid first. Say the aussie and notes are both bid and youre looking at the 10:10, theoretically depending on the positions one should go bid before the other. Unfortunately I never got that far. It would be a useful to indicate if there is excessive buying or selling in one of the markets. That would of been handy for scalp trades.

 

[jmg86]

I know there's a formula which tells you which market should go bid first. Say the aussie and notes are both bid and youre looking at the 10:10, theoretically depending on the positions one should go bid before the other. Unfortunately I never got that far. It would be a useful to indicate if there is excessive buying or selling in one of the markets. That would of been handy for scalp trades.

Its not that one will go bid before they other its that you need to leg the Aussie 10's first then pay up in the Notes to put the trade on.

1 tick in XT = .5 basis point = 35 USD
1 tick in Notes = .2 basis point = 15.625 USD

Also if your doing any range studies, you really need to separate the day session from the night session. The Aussie Bond market is a completely different market during SYCOM.

Are you intentionally trading every session but the US cash market hours?

 

[minwa]

Watching with interest !

Don't you find 5 DOMs on one chart too busy ? Or are you able to monitor them and spot the setups ? I wouldn't have a clue even with just one DOM personally haha.

 

[darkhorse70]

Hey, minwa two of the doms on there I dont really use so Ill be getting rid of them and will be adding
currency and stuff. It's not really over whelming and once you can manage one, you start to focus on two etc.

I tend to not be able to focus on a DOM unless I get a position on. It becomes way more exciting then watching a chart because you can see all the little battles going on between the bid and ask and it really gives you a deeper feeling for whats going on.

The photo attached above was the setup I had at the prop shop. Mind you, I could have had way more DOM up there and that type of trading was the most exciting. Every thing was happening so fast and your looking for opportunities and placing limit orders and cancelling stops every 5 second. I traded like that for a while at home but it was impossible as I mentioned before because you would need super low prop shop commission rates.

 

[darkhorse70]

Mind you that photo I just posted is missing T & S as well.

 

[darkhorse70]

Barely any charts were glanced at. Pure market flow trading.

 

[CanOz]

Barely any charts were glanced at. Pure market flow trading.

Yeah, when i want to know if the markets are going bid or offer all at once, the glance at the Doms is the quickest way to tell....mind you I'm so slow ( ld: ) by the time my eyeballs roll back to my Dom, the moves happened....

 

[darkhorse70]

haha Steve, some markets like the DAX are really fast. The t notes move really slow and even when theyre bid they usually are slow enough. There has been moments that it drops 10 points over a figure. Lesson learnt lol

 

[kid hustlr]

Its not that one will go bid before they other its that you need to leg the Aussie 10's first then pay up in the Notes to put the trade on.

1 tick in XT = .5 basis point = 35 USD
1 tick in Notes = .2 basis point = 15.625 USD

Also if your doing any range studies, you really need to separate the day session from the night session. The Aussie Bond market is a completely different market during SYCOM.

Are you intentionally trading every session but the US cash market hours?

And the Aussie open?

Having sat where you are and finding out how difficult it is I'll be watching with interest. All the best DH