Unfortunately, today was not the day to break 120 145 on the 10 year. It looked very promising when I posted. The failure today at 121 015, followed by a text-book waterfall down pattern to 121 205 led me to believe that we would see significantly more downside today. So, here is some insight on how I've learned to trade what I call a "V" day. Anyone can trade the down-leg (left-hand side of the "V"), it is the up-leg (right-hand side) that kills you if you don't see it. First, I have dynamic S/R based on some different intra-day time periods. Second, I look at volume, and third, I have a fail-safe method that indicates to me that my assessment of further downside action is completely wrong. On the chart, let's start the day not knowing anything about a "V" day, BUT knowing everything about S/R you know that 121 040 to 121 080 will offer significant resistance. At point "A", based on the failure of the previous 5 min bar as well as the knowledge of resistance higher, you would take a small size short, you would try for an entry of at least 121 000 and look to exit near 120 280. Note that you have no idea how far price might go to the downside, you just know that the above entry and target makes sense from PA and SR. Point "B" leads us to our next short entry. Classic retracement technique. Your entry is between 120 270 and 120 280, after the close of the failed 5 min bar. Your target is 120 240, but now you are beginning to realize that price above 121 000 is probably over. You're not sure, but it is a very safe conclusion. With that in mind you can start taking on more size with an eye towards hitting at least 120 205 and possibly taking out the low of the day at 120 175. Point "C" leads us to the first point of indecision for the day. We have two 1000 hrs EST reports due out. First you should have exited most if not all of your position from Point "B". Second, what do we know so far? Price looks very weak. It almost seems a given that we will test the lows BUT we don't know. Stand aside, and follow what happens immediately after the report, when price breaks 120 240. Let's say you entered as late as 120 210, your profit target is now a test of the low, i.e. somewhere near 120 175. Point "D" the low is tested. You should be exiting at least half of your position. Why? You simply don't know if price will break. That is it for the first half of the "V". Now what? You are definitely biased short. Your first objective would be another short. 120 240 looks like a good price to short. This would be at point "E" on the chart. Now for the most important point of the day. Look at point "F". Look at what price does with the linear regression channel at the bottom half of the chart. This technique is my fail-safe method. It tells me that everything I thought I knew about the remainder of today is wrong. What do we know? At "E" price kissed the upper level of the channel. Now at "F" we kiss the upper level of the channel, BUT we are above the channel AND we remain above the channel. At this point and especially at the close of the 1100 hrs 5 min bar, my spidey sense is tingling. I'm out completely on my shorts and thinking of calling it a day. If I were to trade it would have been a long entry somewhere around the 1115 time frame, i.e. after the spike up to 120 250, wait for a retracement and go long. I'm in a rush typing this so I'll come back later and add clarification if necessary. I hope this helps anyone who may have trouble marrying a long term view and a day trade mindset. Just stop it now.
Today or tomorrow John. If Bernanke is rosy about the outlook and the auctions are just ok then boom.
dhpar, BondTrader50, You're very welcome. I hope that my post saved someone a lot of money today, IF they were married to a long term outlook BUT trying to day trade. Funny how I put that up yesterday, and what do you know we get not one BUT two opportunities today to put it to use. If you want to count the trip from 121 and change back down we had three times to put it to use in reverse. Looking back over the 60 min bar chart from 29 April 2009 to today 05 April 2009, I'm amazed at the advertised two lines in the sand "they" have given us. My take is 121 030 - 121 050 on top and 120 160 on bottom. As far as my long term outlook (days) I still say we are headed down to at least 118 BUT I never would have thought we would make so many attempts at my above stated two lines in the sand. Not only that but for the most part attempts on both sides on the SAME day! John
Hi John, Excellent insights into your V trading strategy and thank you very much for posting some details. I was wondering if you wouldn't mind answering some of my questions on the strategy??: a) Do you always use an hourly s/r over a 5min chart for the V strat or would you, as an example, put a 4hour s/r over a 5min chart also?? b) There are 3 lines at the top on your example chart that you posted at 120.784, 120.651 and 120.518. I was wondering what they are exactly?? Your reply would be much appreciated. Thanks J
jfut, I'll try to post as time permits. My first priority is trading. Let me see if I have some downtime as the day progresses. John
Quick post to anyone following the 10 year. This is a very treacherous market, especially since the Fed made its 5 point market moving decision a while back. Assumptions about multi-day directions are proven false each day. Just look at the PA over the last week. In particular look at last night's spike move up to approach 121 080. Any reasonable person would assume that this portends a nice push upward. Now look at this AM at 0722 hrs. We've gone and kissed 120 250 or so. Can you believe it? Just a little bit more and we would have completely retraced yesterday's move! Overnight!