The transition to Futures trading

[CanOz]

Canoz, thanks for the overall summary, very interesting. Broader scope than what I track, appreciate the input.

If you're trading anything, it doesn't hurt to have a look at the big picture. If we are going to have a significant risk off period then one would think Asian markets would start to take a hit. The bond rally is weird, but we live in weird times....I did notice that 2 out of the last three months bonds have risen into the month end, possibly for window dressing and possibly to take positions ahead of the NFP report at the first of the following month. Lets see if they rally into month end this time?

Here is the COT report for Bonds. The commercials are hedged up, so if there is a fall they're protected but continue to take heat as the price has moved up. The large speculators (asset managers) are quite long and if they need to get out there could be quite move...Interesting how the small speculators took some profit off the table...Usually the funds are wrong...so to me its cr*p or gt off the pot for bonds...I'm leaning toward rally into the end of the month...

Maybe RY has a view on the bond cot?

 

[MichaelD]

I'm calling it now, as I have the last couple of weeks. It all looks very bearish to me.

Biased by the fact that you still hold a short position?

Just curious.

Being persistently bearish around all time highs in my view is fighting the trend, mean reversion nothwithstanding. "Picking the top" - not quite as futile as bottom picking, but not far off.

Right now, I'm treading very lightly. Very small position sizes. In and out quickly. Long and short. Mostly long. Waiting and watching.

ps letting forum posters influence your trading is a VERY BAD THING. Just sayin' that in advance.

 

[MichaelD]

ps IG Clients seriously short at the moment.

That's good enough for me to think the market's heading higher and the shorts are in for a good whack of the pain stick.

 

[beachlife]

I'm thinking longer term.

At major tops and bottoms I look to hold a contract or two for the big move.

How do you know if a top/bottom is a major one?

 

[pavilion103]

Biased by the fact that you still hold a short position?

Just curious.

Being persistently bearish around all time highs in my view is fighting the trend, mean reversion nothwithstanding. "Picking the top" - not quite as futile as bottom picking, but not far off.

Right now, I'm treading very lightly. Very small position sizes. In and out quickly. Long and short. Mostly long. Waiting and watching.

ps letting forum posters influence your trading is a VERY BAD THING. Just sayin' that in advance.

Not at all biased by the fact that I hold a short position.
I got short in the first place because I thought it was bearish, not the other way around.
I've taken off intra-day positions at disciplined levels, trailing my stop on position trades at disiciplined levels.
I'm not swinging and hoping here.
I do my analysis. I move my stops accordingly.
Like I said if FTSE breaks 6900 and re-tests it and holds, then I get long.
No bias.

May I also note that the last 3 or 5 times the FTSE has tested the 6800-6900 level it has failed and moved down a few hundred points.

Support and resistance offer good R/R places to take a trade.
It may work.
It may not work.
It won't work every time.

I identified the previous high and made money on the way down.
And a little bit of money on the one before that.

I don't care whether the market is heading up or down.
I analyse it and I take the position I feel best, whether it be long or short. I couldn't care less.

 

[pavilion103]

How do you know if a top/bottom is a major one?

You don't.

But you place yourself in a position to capitalise if it is.

You look at areas that are quite possibly market tops and bottoms.

(btw I'm not talking about major tops, as in it will fall or rise thousands of points; I mean 300-500ish)

E.g. with the FTSE 6800-6900 level has been tested on a longer time frame multiple times and failed.

So I look at this and think that it will need a lot of demand to break through.
It is a POSSIBLE market top where price COULD fail again.

So I look for a short setup that is within my risk parameters and take it with the intention of holding longer IF starts to look bearish and CONTINUES to do so.

 

[CanOz]

Interesting that the FTSE's all time high on my back adjusted chart was December 31st 1999. The high was 6973.5...

These old highs may be created by different constituents but none the less they seem to be like a magnet...

 

[cynic]

How do you know if a top/bottom is a major one?

When I get a margin call from my broker - that's when I know it's major!

 

[MichaelD]

Not at all biased by the fact that I hold a short position.

How much open profit will you have given up if this position hits its stop?

I don't like my profitable short positions to hang around and get stale. For me, I'd rather get in, ride the initial downwards movement very hard, then get out quickly.

 

[pavilion103]

How much open profit will you have given up if this position hits its stop? I don't like my profitable short positions to hang around and get stale. For me, I'd rather get in, ride the initial downwards movement very hard, then get out quickly.

I like to have a runner most of the time. If it's a significant level then maybe more.

From the 6790 level I can give back 72 points profit if I get stopped.
Given that many nights I can make 40-50 points it's not that significant.

Only holding this because of the resistance level.

But u agree with you.
My ideal trade is quick. 30-40 points and then out. Multiplied by 2 contracts profit can add up. As I get more and more consistent I aim to take 3.
3 x 30 is better than attempting 1 x 90.

I often reverse my intra day trades also when I like the setup.

 

[pavilion103]

Sorry 92 not 72.

 

[pavilion103]

Michael, the other reason for the runner is that I can leave it without watching the screen if need be.

If I happen to get on a large move I can leave it and it passively makes money over weeks. I'll move stops sensibly though of course.

 

[pavilion103]

Having said that, it's the exception, not the rule for me. I don't look for runners every night. Only when I feel a good chance to hold for a few days or longer.

 

[MichaelD]

From the 6790 level I can give back 72 points profit if I get stopped.

Sorry 92 not 72.

FWIW, to me that's a *mind-bogglingly large* amount of giveback, especially on a short index position.

My trailing stops give back 5-10 points at most and I still capture 50%+ or more of the meat of the outlier moves.

 

[LinRegSlope]

How much open profit will you have given up if this position hits its stop?

I don't like my profitable short positions to hang around and get stale. For me, I'd rather get in, ride the initial downwards movement very hard, then get out quickly.

Tend to agree, preference for shorts is even tighter stops. Not interested in holding thru a bounce which turns into a reversal and therefore gives up any hard earned profits.

 

[LinRegSlope]

My trailing stops give back 5-10 points at most and I still capture 50%+ or more of the meat of the outlier moves.

On the FTSE, or in general? For the SPI intraday my initial and trailing stop is only 5 points, but my PTs are small as well.

As I mentioned earlier everyone's objective is different. Intraday trading objective for me is cashflow / income.

 

[MichaelD]

On the FTSE, or in general? For the SPI intraday my initial and trailing stop is only 5 points, but my PTs are small as well.

I only trade the SPI (well, the Australia 200 Cash IG equivalent thereof).

 

[DeepState]

Here is the COT report for Bonds. The commercials are hedged up, so if there is a fall they're protected but continue to take heat as the price has moved up. The large speculators (asset managers) are quite long and if they need to get out there could be quite move...Interesting how the small speculators took some profit off the table...Usually the funds are wrong...so to me its cr*p or gt off the pot for bonds...I'm leaning toward rally into the end of the month...

Maybe RY has a view on the bond cot?

Looking only at COT and nothing else, you will see Large Spec increasing positions against market makers each time the bond price rises. Large Spec includes a lot of insurance companies who need to hedge their liabilities. The lower the interest rates go, the more of this stuff they need to buy as their risk buffer is eroded. Also, other investors are in a similar position like the massive DB funds who invest in bonds and also need to buy more bonds as yields decline to hedge their actuarial liabilities which grow as rates fall. The long synthetic exposures get swapped out into physical at some stage, but you see the matching changes with interest rates.

To me, Large Spec movements are a lagging indicator. They are reacting to changes in yield...not forecasting it.

Also, the COT reports are normally used for commodity situations where hedges are placed on expected delivery of real goods. Such goods normally trade with backwardation as a result. Very little is used to hedge by market makers. Hence extreme movements in COT means something which is different to bonds where there is no natural position for the market makers (seen here as the natural hedgers - but they are not quite the same as their book changes depending on inventory).

 

[pavilion103]

Looking to possibly take one off if 6805 gets taken out.

I can't be silly about this. There isn't the level of weakness I require to hold both if that level gets taken out.

 

[CanOz]

Looking only at COT and nothing else, you will see Large Spec increasing positions against market makers each time the bond price rises. Large Spec includes a lot of insurance companies who need to hedge their liabilities. The lower the interest rates go, the more of this stuff they need to buy as their risk buffer is eroded. Also, other investors are in a similar position like the massive DB funds who invest in bonds and also need to buy more bonds as yields decline to hedge their actuarial liabilities which grow as rates fall. The long synthetic exposures get swapped out into physical at some stage, but you see the matching changes with interest rates.

To me, Large Spec movements are a lagging indicator. They are reacting to changes in yield...not forecasting it.

Also, the COT reports are normally used for commodity situations where hedges are placed on expected delivery of real goods. Such goods normally trade with backwardation as a result. Very little is used to hedge by market makers. Hence extreme movements in COT means something which is different to bonds where there is no natural position for the market makers (seen here as the natural hedgers - but they are not quite the same as their book changes depending on inventory).

Thanks RY, appreciate your view. I won't waste anymore time with the COT for bonds...