The U.S. Treasury
futures is
an often overlooked
market. Most traders – novice and professional alike – look at the grinding nature of the trade and assume there is no trade there. In fact, the bonds are a tremendous trade, and at $31.25 per tick give you a lot of bang for your buck. But the best thing about the bonds is that they respond — and have responded for more than 20 years — to specific setups that will allow the novice trader to begin the path to profitability while trading without emotion; and provide the professional trader with more tools to use to win in the markets.
One successful set-up is called “the first-hour trade.” This trade is perfect for both the part-time trader who has a full-time career and the professional trader who trades the entire trading day.
The bond market opens in the pit at 7:20 a.m. CST. Wait until 8:20 a.m. CST and then record the pit high and the pit low for the first hour. The pit trade is a much better indicator of true price action (most charting packages give you the ability to filter your charts to pit only, electronic only or combined).
If the range for the first hour is 13 ticks or less, look for a breakout trade that will trigger either one tick above or one tick below the first hour’s range. The target for the trade is to
double the first hour’s range.
In “One-hour breakout,”
note that the bond market’s first hour range was 116-12 to 116-18. Once that range is set up, put in entry stops to buy at 116-19 or sell at 116-11. On Nov. 23, you didn’t have to wait long for the market to make your decision; at 8:30, the bond market went 18-bid and traded up to 20 – allowing you to get filled on your entry stop at 19. As soon as you are filled, immediately place your exit orders in the order book at the target price: 116-24 (A six-tick first hour range projects to a six tick extension; 116-18 + 6/32 = 116-24). The setup says the market should print the target price – not necessarily trade it - so you want to get your exit orders in fast so you are first in the queue.