Today’s T Bond Trade

I had a few people ask about today’s T Bond trade, so I thought I’d write up a post mortem to give some insight into my thought process.

Below is a daily chart for the March Bonds. Today was a momentum sell short day. The bottom panel of this chart is the two period momentum I use for this. Yesterday’s rally pushed momentum above the zero line, which it hadn’t seen for days. This push meant we should be looking for a reversal in momentum and price today. In addition, yesterday the market closed at the very top of the range, another indication that we should be looking for a potential reversal in direction today.

Daily T Bond Futures Chart-Click to enlarge

I was watching bonds early in the session; they went up and tested yesterday’s high but didn’t see any followthrough. On the intraday chart below, notice the support at 13026.5. Given that I was looking to short, the odds favored downside followthrough if that low was taken out. I especially liked the idea of getting short, and hopefully out, before the FOMC announcement. I had an order working to sell short at 13025 stop, to get pulled in as the low was taken out. I set the initial stop at 13104, and I had an initial target of 13000 (a 50% retracement of the rally from Monday’s low to today’s high. After entry and subsequent decline I lowered the stop to 13002. Given that the FOMC announcement hadn’t yet come out, I was looking to tighten the stop up to cut down on risk. For this trade I wanted to wait to get stopped out rather than use a profit target; if I had stayed in through the announcement, there was the possibility of a bigger profit, especially given the downward bias today. I got stopped out before the announcement, so I was able to spectate for the fireworks. The daily chart is an interesting one. Monday’s low of 12814.5 held, but the big U-turn reversal is bearish.