DH7 Trades the Bond Futures

Hey JMG, didnt see your post mate.

Um well as far as I knew the atr on the Aussie bonds is roughly 2 times smaller than the notes. Hence I think a spread of 1:1 is fairly even. Im not sure if that answers your question?

The way I trade spreads is if it looks like the bonds have excessively sold off and the notes are still strong then a few things can happen. Im expecting that either the notes will start to sell off faster than the bonds or the bonds will rally faster than the notes. That's if im right. If im wrong the bonds could continue to sell off while the notes sell off at a slower pace or not sell off at all.

So id long the 10:10 spread If I thought the aussie was going to outperform the tnotes and sell the spread if it was vice versa.

Now hypothetically, lets say I think the bonds have bottomed out in the scenario above. Ill go long the bonds given the bonds look like theyre going bid. This will be done out right. As soon as I feel the markets could possibly go offered again or the bids on the notes look like they could give way, Ill sell the notes as well.

It's easy for me to visualize the dislocation given the formula as its a lien graph with obvious ranges. Once it gets over extended I start to pay attention.

I havent really spread traded much but I can see the benefits, especially if im holding a position and figures are about to be released etc.

As for not trading the US cash session, theres two reasons. I tend to get out because if I get in during that time, theres no way im going to go to bed haha. The second reason is, im usually in a position before the cash session and as it gets closer to the US cash session my trades usually go my way so I get out.

I guess it's been working so far so I havent really seen the need to trade the US session. But there are times where im holding a position and I need that slight volatility to get a move under way so I hold through the open. Usualyl liquidate before the us figures come out.

Thanks Kid Hustlr. I'm going to pm you.

darkhorse70 said:

Thanks Kid Hustlr. I'm going to pm you.

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I replied.

Anything I say should be viewed in the context of this thread:

https://www.aussiestockforums.com/forums/showthread.php?t=28003

Some 3-4 months after that last post I kicked it in as I got sick of being a break even trader. For me it was the correct decision. I think my prop shop actually shut up some 3-4 months after that to.


On 'Making it'
For a young 18-25 year old guy it is very difficult to 'make it'. a long period of learning, months of trading small size whilst fighting desk fees, software fees, brokerage, etc puts you up against the wall from the get go. Add to this external pressures from family/gf/etc from those who don't quite get how you can work 10+ days for free and there's a lot of things holding you back. Most who make it probably had a little bit of luck along the way. Don't be discouraged about not getting through the Aliom phase - it's not the end of the world but it does mean you now need to work even harder, find contacts online, read blogs, whatever it is as you won't be able to lean on traders sitting next to you for assistance.


On Trading the Aussie bonds
For me I saw the game change before my eyes. Our firm used to have a whole bunch of bread and butter type trades - sitting bid/offer in the close, trading data successfully, managing queue position, making good money in the rollover period which all got eaten away by technology and algorithms. As such pure scalping become almost impossible because taking half a tick didn't cut it anymore. My style (almost arbitrage in a way) was no longer successful and I wasn't willing to try to start again. I also found there were plenty of days with maybe 1 opportunity all day - it made it very hard to be consistent.

Noting the above, regardless of your style, if I have any advice for you:
1. Manage downside risk. Scratches, half tick and one tick losers won't blow you up
2. Understand when to average - I know people justify spreading by saying they just average it out - too me this is flirt with danger and you need some type of plan.
3. When you are seeing it well, throw the kitchen sink at it. I mean this the most. Once a week for a few hours or a couple of times a month with enough experience, it will move in slow motion for you and you need to throw everything you have at it. Size up and go big. My biggest day's should have been twice as big. I remember a couple of days where there was little momentum algorithm buyers or sellers - traded properly and it was as close to free money as you get. Or sometimes you see something you like on the chart, combined with the time of day and some depth action and you just think 'wow I know what's going to happen here'. Everything lines up. In those cases go for it and HOLD ON.
4. Assume every day is a war. This is the mentality you need. There are guys in the sky scrapers in Sydney and Singapore trading 20 hours a day managing a huge book. They are punters like you and are in it to make money. These markets more than ever have a huge % of locals who are trying to rob you. You need a killer instinct to kill.

Good luck mate. Document as much as you can in here - your style will likely change 10 times in the next 6 months.

kid hustlr said:

1. Manage downside risk. Scratches, half tick and one tick losers won't blow you up
2. Understand when to average
3. When you are seeing it well, throw the kitchen sink at it.
4. Assume every day is a war. This is the mentality you need.

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Best post on ASF I've seen for a while.

Agree with all of it Kid.

Regarding going big on set ups you see, some thing on that line happened a few days ago. The market just completely went aggressively bid in the bonds. Equities just turned around and its that moment you know some thing big is going to happen. Going big on those plays and holding on is one of those big pay out type of days.

All I did during aliom was trying to front run the Que in the bills. I thought that style had a lot of merit given practice and learning how to Que through different spreads etc.

I'll print out the key points for future reference.

I'll be documenting every day religiously. Some time's it's just the fills and the results. Other days it'll be more descriptive.

I don't think I can ever turn back. I've tried that once and I just felt empty. I felt as though part of me was missing. When youre around other people who are talking about their careers and passions and when I tried to take a slightly different avenue I just felt lost.

This is where I have to be. I just hope I have the wits to one day pull it all together. I sure as hell dont have the ability to socially win people over or express myself in a dominant type of way. I guess that's why the only way I can prove it is through mere results.

darkhorse70 said:

Um well as far as I knew the atr on the Aussie bonds is roughly 2 times smaller than the notes. Hence I think a spread of 1:1 is fairly even. Im not sure if that answers your question?

So id long the 10:10 spread If I thought the aussie was going to outperform the tnotes and sell the spread if it was vice versa.

Click to expand...

ATR may be twice the size of the XT but when you are spreading Bonds you are essentially spreading cash, which is reflected in basis points not in ticks. A roughly 1:1 ratio is correct but if you judging relative value based upon the Notes moving more ticks than you aren't really making a trade on out-performance. You need to do it based on DV01 values (Value of 1 Basis point) which is a bit messy as the notes are priced differently.

The DV01 of an XT is $100 AUD or $70 USD and equal to 2 ticks.

The DV01 of the Notes is $79.80 USD (see link below). If a tick in the Notes is worth $15.625 then a 1bp move is 5 ticks.

If you apply that to your trading, seeing the Notes falls 5 ticks whilst the Bonds only move 2 ticks isn't actually outperformance so to speak. They both moved the same amount and your spread p/l wouldn't have moved.

http://www.cmegroup.com/trading/interest-rates/invoice-spread-calculator.html

captain black said:

Best post on ASF I've seen for a while.

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Agreed.

Hey JMG, I read about dv01's by Guy Bower. I understand some of the stuff youre saying. To be honest, the spreading stuff still confuses me.

Im spreading future bonds (does that make a difference). I know there are two types. The yield and the price?

To be honest again... when we were trading for 6 weeks every one used different terminology for ticks/points etc etc. I guess the fundamental stuff didnt really matter at that point. Some people even got so confused that the trainers were just like view the movement of the price by supply and demand not the consequences of the yield curve etc.

So if I see a trade where there is possible support in one market and not in the other or an over exaggeration in one, then ill try to spread it.

The funny thing is some of the traders didnt even understand most of the fundamentals or how things were priced.

I dont want to frustrate you as I dont know much about spreading and using the dv01 to figure out how much one markets over exaggerated is out of my league.

Isn't my way still doable?

On another note I found out cqg q trader doesn't support more than 1 chart at any one time.

Im setting up multi charts. Its confusing as hell. Hopefully be ready to work off within the next few hours. Good thing its good sim mode and hopefully stats options.



Progress is slow but hopefully the setup looks better once im finished lol.

darkhorse70 said:

Isn't my way still doable?

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Potentially, but the 1:1 ratio you are using is derived from the DV01s which is why you trade on that, not on ticks.

79.80 USD (Notes)/70 USD (XT) = 1.14 so the DV01 neutral ratio is something like 11 XT against 10 Notes but with smalls 1:1 is ok.

Think of the Aussie 3/10s which are priced identically as 100 - rate. If both move 1 full point (1 basis point) on a 1:1 ratio you have made 100 AUD in the 10s and lost 30 AUD on the 3's, which is why they trade them as a 33:10 ratio. In your case you have the ratio correct, but not the price changes.

Ok I get what youre saying now.

Well I should have been more clear. I never really looked at the perfect hedge ratio. But even when you spread trade, youre never really completely hedged or you wouldnt be able to make money.

In terms of actually hedging up against risk getting a more accurate hedge ratio is important.

I guess I was throwing out a superficial number off the top of my head but youre right.

Thanks for the input.

jmg, have you noticed a thinning out of spread trading in Australia in general? Speaking to a few people i know in the business, there seems to be less of the traditional arbitrage like opportunities now, as Kid was saying, perhaps from more volatility in bond futures?

I've always been interested more in equity index spreading, as watching many different indices at the same time while directional outright punting lends itself to auto-passive observation of opportunities as they develop. Tons of opportunities in the Asian and China linked indices due to intervention but as well in Eu indices around the ope and before the US opens. (For example, the CAC was lagging the Dax yesterday, but it caught up in the end)

Also, i had heard that there had been a big loss at one of the Singaporean prop firms due to a blow out in the bonds recently....and, but not related to that episode, that several well known Australian bond spreaders had exited the business altogether or had switched to equity index spreading and directional outrights...any further insight here?

Cheers,


CanOz

Quick update as ive been setting up the charts plus doing exercise and trying to catch up with the market flow.

E mini looks like its possibly topping off for the time being. Its close to the high of yesterday. Looks like slight exhaustion for the meantime.

T note looks like it might be bottoming out.

Need to focus on market flow for 30minutes and see if I can get in with a low risk set up for a few ticks.

Ill screen shot if i get in to a position.

Spreading is a good solid strategy when done right. My advice to anyone starting out is to forget about trying to trade spreads intraday, and look for opportunities over a swing trading period (1-3 days). The intraday horizon is very competitive, and brokerage/execution is critical. You can spend a lot of time finding a niche edge only to have every one jump on it and you are back to square one.

If you can develop the skill to hold for a few days, you have developed a business model that is scalable and largely impervious to transaction costs.

Ill let you know what price I buy at, why I do so and what price I sell at plus any relevant thoughts...

Bought 2 long @ 17.5

Was going to try and go to long at 17.0 but I got mistaken to to the set up. Lets see if I can get 2 ticks or what ever the official terminology is.

Hoping for the emini to continue sell off and for the bonds and notes to start going bid.

Using cqg I had a tool that helped me see the current direction of the last 5 or so moves on the dom. I dont know if MC has that so i might lose some slight touch....

Ill need closer screen shots. My pc is a mess now. Will fix every thing tomorrow.

CanOz said:

jmg, have you noticed a thinning out of spread trading in Australia in general? Speaking to a few people i know in the business, there seems to be less of the traditional arbitrage like opportunities now, as Kid was saying, perhaps from more volatility in bond futures?

I've always been interested more in equity index spreading, as watching many different indices at the same time while directional outright punting lends itself to auto-passive observation of opportunities as they develop. Tons of opportunities in the Asian and China linked indices due to intervention but as well in Eu indices around the ope and before the US opens. (For example, the CAC was lagging the Dax yesterday, but it caught up in the end)

Also, i had heard that there had been a big loss at one of the Singaporean prop firms due to a blow out in the bonds recently....and, but not related to that episode, that several well known Australian bond spreaders had exited the business altogether or had switched to equity index spreading and directional outrights...any further insight here?

Cheers,


CanOz

Click to expand...

My understanding is plenty of local traders 'jobbing/scalping/spreading around the curve have struggled over the last 2-5 years. In my view it's not a volatility thing - that comes and goes, its the ability to rely on queue position for a fill which has been taken away. Algos just took over and removed this edge. You can't be a market maker anymore. Good traders adapt to high and low volatile periods in my view, so long as the market has a base level of opportunities each day, they will hang around.

relval said:

Spreading is a good solid strategy when done right. My advice to anyone starting out is to forget about trying to trade spreads intraday, and look for opportunities over a swing trading period (1-3 days). The intraday horizon is very competitive, and brokerage/execution is critical. You can spend a lot of time finding a niche edge only to have every one jump on it and you are back to square one.

If you can develop the skill to hold for a few days, you have developed a business model that is scalable and largely impervious to transaction costs.

Click to expand...

Agree with this entirely.

Darkhorse - learn not to sleep.


https://www.youtube.com/watch?v=lsSC2vx7zFQ

kid hustlr said:

Some 3-4 months after that last post I kicked it in as I got sick of being a break even trader. For me it was the correct decision. I think my prop shop actually shut up some 3-4 months after that to.

Click to expand...

Got the felling this will be the theme now. Everyone is chasing the same game of ASX rebates while churning trainees through a program designed to have them flat before costs......

kid hustlr said:

On Trading the Aussie bonds
For me I saw the game change before my eyes. Our firm used to have a whole bunch of bread and butter type trades - sitting bid/offer in the close, trading data successfully, managing queue position, making good money in the rollover period which all got eaten away by technology and algorithms. As such pure scalping become almost impossible because taking half a tick didn't cut it anymore.

Click to expand...

I reckon every few years you have to reinvent yourself as a intraday trader. Markets never stay the same for long.

kid hustlr said:

My style (almost arbitrage in a way) was no longer successful and I wasn't willing to try to start again. I also found there were plenty of days with maybe 1 opportunity all day - it made it very hard to be consistent.

Click to expand...

I understand why prop push you towards small tick per day instruments but I am always perplexed why an independent trader will choose that route. I've always looked at the big movers because I often have my first 3-5 trades go bad while I'm feeling out the market. On the DAX or HSI thats 15 minutes of Monday morning, 30 min into the week and I'm back positive and making money. On the Bonds 5 bad trades and that is the week gone!!!!

Relval, I agree with hat your saying. Maybe even putting on some butterfly spreads etc. If only I knew how to do that.

Kid, I watched motivation videos for 2 months straight. I'm slightly immune to them now. It's a balance between keeping my anxiety under control while developing into a good trader. My life style is like one huge routine. Work my butt off, then go cycle then work again then spend a few hours bonding with my dad or brother or some thing.

Once I establish that I can trade, then its just a matter of increased trading exposure. More time spend behind screen = more opportunities. Currently if ive had a good day, I dont like to get over confident and destroy good gains and chase it during the entire week.

TH, I was great at trading the DAX. It felt like second nature to me but I didnt have that kind of capital to sustain a bad trading day. I know they have a mini DAX now? As far as slow moving markets, if you are consistent, just increase the trading size. Load up on more lots?

I dont have enough stats to compare markets and say this is the best market for me. I'm just dipping my toes into different markets. The margin on these t notes is 1g. The margin on a contract for the DAX is a few thousand?