The Challenge

[bond_trader1]

A well intentioned person who knows of my all consuming interest in trading has sent me a copy of Shares magazine.

As if shares were all you could trade.

Still, in the Services Directory at the back there is a list of some spread bet companies so I decided to pay them a visit to compare spreads on the Bund and Bobl.

The companies I looked at were:

Man Spread Trading
Selftrade (I'm currently in the process of opening an account with them because it says they offer free level 2 order book access)
Finspreads (I've opened an account with them)
City Index
Capital Spreads
Cantor Index
IG Index
CMC Markets (I've just opened an account with them)

Whilst doing this I thought I may as well exhaust as many possibilities as I can so I have also tried:

Tradindex (I've opened an account with them)
Worldspreads
Twoway Spreads
Spreadex

TD Waterhouse (I'm currently in the process of opening an account with them because they give you a £150 when you open an account - may be useful for a practice run!)

I found that none of them quote a lower spread for the Bobl (2) than E*Trade (who I currently use).

IG Index however, seems to have the most competitive spread on the Bund, which it says is 2. That's one better than my account with E*Trade, so I'll be opening an account with them next.

P.S. Just incase it's of any doubt to anyone, I am not affiliated, in any way whatsoever, with any of these companies.

 

[bond_trader1]

I just read an interesting article over at Forbes.

The article talked about how inflation data out today will be closely watched as an indicator for the wider euro zone inflation data due out on Thursday. The inflation rate is expected to have risen to an annual rate of 2.0% in May against the 1.9% recorded in April on the back of higher fuel prices. It said that any upside surprise will keep short-term bonds under pressure as investors try to make out how much more interest rates will rise this year.

One quote in particular caught my eye: "The downward path for European government bonds is clear,' said Michael Cartine at IFR Markets.

'The strength of the euro zone economy and concerns about inflation will continue to weigh on the market, with added pressure now coming from the realization that - real estate aside - the US economy is actually still humming right along," said Cartine.

The article said that movements in US Treasuries add to the downward momentum in European bonds, as investors see interest-rate cuts less likely in coming months, making US data very important.

It added that also weighing on short-term bonds is the continued strength in equity markets, which is drawing capital away from fixed-income products.

"As long as stocks remain solid, major bond markets are at risk,' said BNP Paribas analysts.

"Any significant correction in equities, however, would see greater risk aversion, boosting bonds with bids in search of the safety of government debt."

This suggest to me that I should begin to look at:

US news and how it affects Treasury prices
The major markets: The Dax, the Cac40, the FTSE 100, the S&P500 and the Dow Jones Industrial Average.

 

[bond_trader1]

I pulled up two charts this evening for the Dax and the Bund and compared them side by side.

The degree of correlation between the two is immediately obvious.

However, certain areas stand out to me.

Throughout February, the Dax moved steadily higher but the Bund found a temporary support zone and made a series of higher lows. This culminated in a sharp break to the upside over two days and a move through resistance. However, there was no corresponding move in the Dax - it merely inched higher. This preceded a huge one day fall on the third session.

Later, throughout most of April and the first half of May, the Bund once again formed a trading channel. The Dax on the other hand, resumed its clear trend and broke to new highs, which then dragged the Bund down through support and onto new lows.

 

[bond_trader1]

News update:

The ECB's Garganas said overnight that market expectations for a June interest rate hike are correct and added that he cannot rule out the possibility of raising interest rates beyond June.

He said that price pressures are building up and that some factors currently point to higher inflation in 2007, noting that the ECB must remain vigilant on inflation.

So, interest rates to continue on up. Check.

Use of the word vigilant (Remember Lawrie Inman made £700,000 as a result of loading up on bonds when the word wasn't used in a speech). Check

Risks:

There was a sharp drop in the retail PMI indices for April recorded on Wednesday.

There is also a growing risk of a downturn in the property sector.

Stock Indexes look a litle top heavy right now. In particular I've been watching the Dow Jones and a fall looks imminent.

 

[bond_trader1]

What I am trying to do with regards to fundamental analysis is try and get a general picture of the future expectations of interest rates at any time because that is the primary mover of this market.

My aim is not to read every single piece of economic news that comes out of Europe and then regurgitate it on this thread but rather to, from time to time (with a degree of regularity), read a piece of news or a market summary and note down anything of interest: key reports that traders are waiting for, expected numbers, analysis of speeches or previous reports, to gauge the general market sentiment.

There are so many items of news out and many conflict each other. As a result I am finding it a lot harder to build up a view of the market as a whole from the fundamentals than simply by looking at a chart.

My take on this is that the market on a longer timeframe (daily/weekly) will turn not as the result of one piece of economic news but rather as the sentiment of it turns.

On an intraday timeframe, I would expect volatility as traders read, react, digest and look ahead. As a result of this, I will probably take the advice that has already been given on here and be flat around the times of news releases.

 

[Climbing Everest]

Hi,

Just a quick note to say that you are correct in your analytical approach, but I still feel the best way to make money considering your small account size, is to have leverage and follow short-term trends. This is trading, not investing. All I can say about the news is: beware, it's not your edge. Your only edge can be found as a modicum of technical understanding combined with strict self discipline.

Anyone can have an account with Global Futures (or other broker), and their Strategy Runner, while not suitable for a professional, is good enough. The main reason I like it is that it'll show clearly all your entries on the chart-so you can analyse mistakes later.

In the end, you'll have to make a large number of trades to achieve your goal, and they'll have to be fast and technically consistent. Choose 2-3 strong reward set ups, and for a month on 1 contract get used to the stress of holding, and get consistent profits. Then, if you use Global, you have an ability to scale up your contracts (with accompanying risk) to match your perceived ability and your confidence.

Also, don't waste too much longer-at the start, the amounts will be small, but the last two months will be where you make your best gains-more experience, ability, leverage. So, you have to be mindful that you should be building now.

BTW, I just want to add that your scenario is inordinately difficult. Moreover, I don't see the effort/reward relationship as worthy of wasting your precious time. Put simply-to achieve the goal you'll be either extremely lucky, extremely skillful, or you'll have to get extremely mucky and slave hard and consistently over small amounts. The chance of a new trader being able to do that is minimal.

Good luck.

 

[bond_trader1]

I played the 30m charts blind again this evening.

3 days trading resulted in two trades. Both were wins - 10 ticks in total.

Not the best result in three days.

Perhaps I should seriously consider different exit strategies. It seems like having a fixed target would mean I miss many of the larger moves. Perhaps I could try taking off half the position at five ticks and putting the other half at break even and riding it.

Looking at these trades you can see the first one would be significantly in profit by now (without having hit my initial stop) and the second trade went a whole lot further than just five ticks.

 

[bond_trader1]

Just a quick note to say that you are correct in your analytical approach, but I still feel the best way to make money considering your small account size, is to have leverage and follow short-term trends. This is trading, not investing. All I can say about the news is: beware, it's not your edge. Your only edge can be found as a modicum of technical understanding combined with strict self discipline.

Thank you for your continued interest. This is a fantastic post.

Anyone can have an account with Global Futures (or other broker), and their Strategy Runner, while not suitable for a professional, is good enough. The main reason I like it is that it'll show clearly all your entries on the chart-so you can analyse mistakes later.

I had a brief look at their website whilst at work today but I couldn't find any specific market information. Can you tell me what the spread on the Bund is? The best I have found so far is 2. I'm actually fairly excited about this because I've been accounting for a spread of 3 but a point better reduces my risk and potentially increases my profit.

Also, don't waste too much longer-at the start, the amounts will be small, but the last two months will be where you make your best gains-more experience, ability, leverage. So, you have to be mindful that you should be building now.

I agree - I will begin soon.

 

[Climbing Everest]

Here is the page with intraday margins listed on the left (not holding outside daily trading hours, not overnight (those are the larger amounts on the right)).
http://www.globalfutures.com/margins/margins.asp#

There is no spread-you buy the offer or if you're lucky and the bid is oscillating, you can buy the bid. Bid and offer are 1 tick different. I haven't watched the DOM on the BUND for a while, so I'm not sure whether it's stable or being spoofed continually. Definitely will be periods of unreadable price action.

Still, if you choose a spread broker, you'll have your reasons. I've never thought of using one, myself. I should read up more in case I'm misinformed.


BTW, be cognisant of two things (obvious, but worth repeating):
1. You've got to decide on a clear strategy regarding number of trades. What number of trades per day/week best fits your model/analysis, and optimises your chances of income? 3 per day? 5 per day? 5 per week?

....related to this
2. every loss you have knocks you back significantly, so you must be sure of being able to have consistent runs of decent size winners, as well as tight control of losses. It's stunning the difference in your account if you avoid major drawdowns. You can write this down to see the permutations and ensure you are focused on building money, not just trading.

 

[bond_trader1]

Here is the page with intraday margins listed on the left (not holding outside daily trading hours, not overnight (those are the larger amounts on the right)).
http://www.globalfutures.com/margins/margins.asp#

Thank you for this. Both yourself and options are being great a great help and I really appreciate it.

There is no spread-you buy the offer or if you're lucky and the bid is oscillating, you can buy the bid. Bid and offer are 1 tick different. I haven't watched the DOM on the BUND for a while, so I'm not sure whether it's stable or being spoofed continually. Definitely will be periods of unreadable price action.

Still, if you choose a spread broker, you'll have your reasons. I've never thought of using one, myself. I should read up more in case I'm misinformed.

I can't help thinking that this sounds like a more professional entry to this market. My ability to enter trades is going to be limited because of work. Watching a moving bid/ask spread and looking for very short term plays - oscillating bids, spoofing (I have only the vaguest notion what this is) is out of the question.

I started out with the intention of position trading off daily bars - placing orders and exits before/after work and then analysing what happened when I get home. Since then I have progressed to considering day trading 30m and 5m charts. But I really think that is unrealistic.

It's not only a case of my limited screen watching time. I've been told that 5m is fast paced and difficult to trade. I have a very low level of capital and as a result almost no margin for error. To be fair I've only looked at the timeframe a handful of times but I don't feel confident on it. So, I'm going to have to drop it for now.

The 30m is a slightly different story - I feel that the moves seem more meaningful and less like "noise" and it requires a little less attention and yet offers far more frequent setups than the daily charts. As a result, I will still look at this with the intention of trying to trade it.

The reason I chose a spread broker is because here in the UK your trading profits are tax free, the account was incredibly easy to set up and I just felt it was more accessible to a complete beginner.

The spreads are larger (2) but there are no commission charges either. Also, the margins can be very low. IG Index require £140 margin per £1 traded in the Bund but this varies widely from company to company. E*Trade only require £30 per £1, I believe.

BTW, be cognisant of two things (obvious, but worth repeating):
1. You've got to decide on a clear strategy regarding number of trades. What number of trades per day/week best fits your model/analysis, and optimises your chances of income? 3 per day? 5 per day? 5 per week?

I think I have decided on a strategy. I am going to split the £1,000 into two portions of £500. I will reserve £500 for longer term daily setups and trade £500 on intraday price action mainly looking at the 30m chart. I will be looking for pin bars, bullish/bearish engulfing bars etc at support / resistance levels. I will probably also try and bring in other areas of confluence at some stage. Moving averages, or Fibonacci levels, perhaps even an indicator to aid in timing - I keep meaning to get around to looking at the CCI.

....related to this
2. every loss you have knocks you back significantly, so you must be sure of being able to have consistent runs of decent size winners, as well as tight control of losses. It's stunning the difference in your account if you avoid major drawdowns. You can write this down to see the permutations and ensure you are focused on building money, not just trading.

All this will happen once I begin properly. This shouldn't be too long now. I have a few more things I would like to look at and I am also waiting to be paid so that I can transfer the money into the account. Hopefully not long now...

 

[bond_trader1]

I look at this chart a lot and it makes more sense to me every time I do.

The price enters periods of consolidation where it is either being accumulated or distributed by market participants. While it trades within this range it is hard to tell which phase it is in. This only becomes apparent when it breaks out.

In the first period of consolidation (see chart) the Bund was being accumulated. The breakout then led to a move higher, until it traded once again in a sideways range and was distributed.

Once it broke support, the market suffered a sharp move down own with a brief interim whilst more distribution took place.

This idea of accumulation/distribution probably seems fairly obvious to most people but what has occured to me this morning is that it is probably key to bear this in mind if I am going to position trade this market on a daily/weekly timeframe.

When I look at this market my natural instinct is to want to buy it. Yet the trend is clearly down. A five year old could look at the chart and tell you that.

So, why look at it with a long bias? I guess it's not because I think the move is overdone or Bunds are now undervalued but because we know by it's very nature that the market moves both ways. So it's natural to presume that what goes down will ,eventually, come right back up.

But I am aware there is a very important timing issue here. If the number one lesson to all traders is let your winners run and cut your profits quickly then my timing is going to have to be spot on. And I'm fully aware that as a new trader this is unlikely to be something that I am going to master right off the bat.

So I imagine that any move up from these lows should probably not be impulsively bought but instead, I should wait on the sidelines until the market establishes a "box" (a consolidation phase) and then breaks out OR rather than a box, it begins to develop a series of trending higher highs.

 

[bond_trader1]

Another heavy fall for the Bund today.

 

[bond_trader1]

I saw this opportunity develop today and thought about calling it live (well, my chart at work does have a 30 minute delay) but decided better of it.

Still, I am getting more confidence in this market.

 

[bond_trader1]

I found this website in my quest for more information on the Bund: http://www.futures-house.com/en/analysen/Renten.m

It provides analysis and outlooks for the Bund from different sources.

 

[bond_trader1]

A chart of a timeframe I've not yet looked at - the weekly.

This was a perfect formation.

When it broke it was a one way ticket down.

 

[bond_trader1]

This price action setup (with confluence) on the weekly would probably have been a loss.

Although it's worth nothing that the loss would have been 67 ticks and the second trade (mentioned above) would so far be up 175 ticks.

 

[bond_trader1]

This site looks good for specific news relating to Bunds: http://www.tradethenews.com/symbol_history.asp?smbl=BUNDS

As Climbing Everest said, news is not going to be my edge but I still want to know what is going to effect the market and when.

Tradethenews have a free trial but I don't think I will be able to take advantage of it whilst at work.

Bloomberg is extremely informative and that's my main source of news whilst at work. I can even run the TV they offer on the site although I believe its delayed.

IG Index provides access to AFX News and R.A.N. (with a 30 second delay) and Finspreads offer Dow Jones Newswires but both these sites will be inaccessible from work because they are banned by our WebDefence software.

I also opened an account with Oanda over the weekend. I heard that they offer a good news service.

 

[bond_trader1]

Alexander, a T2W member, led me to this link this evening: http://www.bloomberg.com/markets/rates/germany.html

I spent all day looking for a chart of the European yield curve and there it was, right under my nose.

There is a chapter on bonds, in an economics book I found lying on a desk at work. (I work on the web team of a financial magazine - infact there were a lot of books on trading on the desk opposite me!)

I browsed through it briefly today but I will read it properly tomorrow.

 

[bond_trader1]

I've run into a problem.

The September future is now trading alongside the June contract in E*Trade (which is due to expire shortly - on 7 June)

Currently, the June contract is saying "Access Denied" when I attempt to pull up the chart and the September contract being new and only having traded two days, has only two candles in it.

So it would seem that each new contract results in the chart data being reset and if this is the case, it almost certainly rules out using E*Trade as I will not be able to see historical data - support/resistance lines etc unless I commit it to paper, beforehand.

I've had a look at Finspreads and IG's daily data - it goes a few weeks further back but it has a lot of gaps in and I have a feeling they are from faulty data rather than a reflection of the market movement. This makes levels harder to plot from a technical perspective.

I've left my details with Global Futures and asked them to give me a call but Strategy Runner looks like it costs extra to use...

What I would really like access to is a complete chart history for the Bund - all historical data from contract inception to the current day. I can get this for almost any other futures market but not for the Bund.

So, overall I'm starting to worry that I don't have the right tools to accomplish this and it's making me feel a little down.

 

[bond_trader1]

I have opened so many trading accounts that I am losing track of them!

I've just applied for one with Xpresstrade.

I figure it can't hurt to have a lot and work out which one is the best for me.