Bonds for the small trader

I agree , notional value is not an indication of risk.

The risk as I see in bond futures is 1.5-2 full points times the number of contracts you carry , that's how much it can move in 30 sec, blow through your stops or coincide with a technical failure at your broker. So "max" loss per contract would be 2K , if that's my 5% max "black swan" risk per trade, I need 40 K per contract traded. Trading one contract is a losing proposition, ideally I want to carry at least 3, 4 is better.


The problem with eurodollars, and 2 year is that it's not really a market for technical traders. This is for yield curve plays, interest rate outlook plays, etc. or daytraders . Not what I do. I think I will trade the 5.
 
All this talk of bond risk not no one has even mentioned duration and yield volatility? I think you ought to go back to talking about doctors - this is out of your league

Quote from Kicking:

I agree , notional value is not an indication of risk.

The risk as I see in bond futures is 1.5-2 full points times the number of contracts you carry , that's how much it can move in 30 sec, blow through your stops or coincide with a technical failure at your broker. So "max" loss per contract would be 2K , if that's my 5% max "black swan" risk per trade, I need 40 K per contract traded. Trading one contract is a losing proposition, ideally I want to carry at least 3, 4 is better.


The problem with eurodollars, and 2 year is that it's not really a market for technical traders. This is for yield curve plays, interest rate outlook plays, etc. or daytraders . Not what I do. I think I will trade the 5.
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I know what duration and yield volatility is, I mean enough to trade futures. These concepts are almost irrelevant for the technical futures trader anyway. Again I don't want to trade spreads or the yield curve.

You must have a doctor in your family, but that's all right.
People always get pissed off when you attack their beliefs or livelihood.

Anyone knows a good encylopedia type book of the bond market to recommend (but not too theoritical) , please let me know.
I have read " hOW THE BOND MARKET WORKS" by Zipf , the litlle securities guide by Veale , Stock , Options, etc and Fabozzi ; How to manage a corporate bond portfolio.
I know the exchanges have good info but also theoritical, how about a book on trading bonds in the trenches ?
 
How is duration irrelevant to trading futures from a technical perspective? If you ignore the effect of duration, your whole chart or indicator is going to be show a systematic bias.

And no, I don't have a doctor in my family (plenty of lawyers and other scums). I'm just amused by your own small mindedness (which is further confirmed by your confidence in your trading abilities when you clearly aren't even familiar with the most basic fixed income concepts)

Quote from Kicking:

I know what duration and yield volatility is, I mean enough to trade futures. These concepts are almost irrelevant for the technical futures trader anyway. Again I don't want to trade spreads or the yield curve.

You must have a doctor in your family, but that's all right.
People always get pissed off when you attack their beliefs or livelihood.

Anyone knows a good encylopedia type book of the bond market to recommend (but not too theoritical) , please let me know.
I have read " hOW THE BOND MARKET WORKS" by Zipf , the litlle securities guide by Veale , Stock , Options, etc and Fabozzi ; How to manage a corporate bond portfolio.
I know the exchanges have good info but also theoritical, how about a book on trading bonds in the trenches ?
More...
 
Quote from Kicking:


Anyone knows a good encylopedia type book of the bond market to recommend (but not too theoritical) , please let me know.
I have read " hOW THE BOND MARKET WORKS" by Zipf , the litlle securities guide by Veale , Stock , Options, etc and Fabozzi ; How to manage a corporate bond portfolio.
I know the exchanges have good info but also theoritical, how about a book on trading bonds in the trenches ?
More...
I always recommend three:
1. 'Fixed Income Securities' by Tuckman
2. 'Eurodollar Handbook' and 'Treasury Bond Basis', the two seminal texts by Burghardt
3. 'Understanding the Yield Curve' series of papers by Antti Ilmanen (old Solly papers)

They're all fundamental texts, but may be 'too technical' according to your criteria.

As to the other discussion, I think you people are being silly.
 
thanks Martinghoul.
sjfan, probably we don't trade the same way and for the purpose of my trading duration simply means that the move will be bigger in the 30y than in the 10y. I know you must think you are the shit because you went to a good school but how is your trading? that is the question .
 
I meant it in the sense that duration changes over time and for the size of the underlying rate move. So while it is true that 30y has a duration > 10y, it's also true that for the same underlying yield change, a 10y future will not have the same change in price over time. If you are only doing technical analysis on the price of future, you'll get a distortion from the convexity of the bond, which changes the duration.

This has nothing to do with what school I went to. It's basic bond math. If you fail to appreciate this point, I don't see how your trading can be anything than gambling.

Quote from Kicking:

thanks Martinghoul.
sjfan, probably we don't trade the same way and for the purpose of my trading duration simply means that the move will be bigger in the 30y than in the 10y. I know you must think you are the shit because you went to a good school but how is your trading? that is the question .
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Quote from sjfan:

I meant it in the sense that duration changes over time and for the size of the underlying rate move. So while it is true that 30y has a duration > 10y, it's also true that for the same underlying yield change, a 10y future will not have the same change in price over time. If you are only doing technical analysis on the price of future, you'll get a distortion from the convexity of the bond, which changes the duration.

This has nothing to do with what school I went to. It's basic bond math. If you fail to appreciate this point, I don't see how your trading can be anything than gambling.
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I am sorry, but I do have to tell you that you're barking up the wrong tree here, sjf...

Yes, all these things you mention are true and should be understood. However, you do realize you're talking about convexity in a retail context? Have you considered what sort of a pnl impact from convexity you're talking about?

While I generally advise people to learn as much as they can about the fixed income mkt from the books I have mentioned, I do realize that it's always 'horses for courses'.
 
Convexity doesn't matter from a retail perspective so far as PnL is concerned. That much I agree with you.

However, this guy wants to do technical analysis on bond prices. My point is that without accounting for duration and the convexity effect on that duration, indicators will be systematically biased due to the duration effect. So the signal he gets will be biased.

But whether that layer of noise will matter for him will depend on whether the indicators he uses have value in the first place... the odds aren't in his favor.

Quote from Martinghoul:

I am sorry, but I do have to tell you that you're barking up the wrong tree here, sjf...

Yes, all these things you mention are true and should be understood. However, you do realize you're talking about convexity in a retail context? Have you considered what sort of a pnl impact from convexity you're talking about?

While I generally advise people to learn as much as they can about the fixed income mkt from the books I have mentioned, I do realize that it's always 'horses for courses'.
More...
 
Oh, and by the way - what does this expression mean? I have to admit I have never heard of this one.

Quote from Martinghoul:

'horses for courses'.
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