The 3-2-1 Approach: A Simplified Method for Trading Any Market

"The inverse relationship w/the ES dominated the early trading."
This makes me wonder if you were even watching the markets let alone trading them.
You also say that
"Economic reports took the bond higher after the ES started to sell"

To my memory, the bonds did start to rally after the 9am news, but stocks rallied too. Bonds rallied with the stocks and continued to rally after stocks turned. The inverse relationship may look ok after the fact, but if you had tried to trade bonds against stocks yesterday, you would have been stopped out early on.
 
Inverse Relationship

I never, repeat never, trade the bonds off the direction of the ES. This comment by Charles is only a general observation. The trades I take are clearly described in my posts. They only utilize signals which I feel give me an edge.
 
I was wondering back to the first few pages of this thread where Zal was saying that ES participants are 4:1 in favor of speculators , according to exchange cti codes.

I have looked at various cti codes over the years and have never seen a ratio of 4 :1.

From what I have seen on average 25% of volume is locals trading with other locals CTI1 , 15-18% of volume is locals with clearing members CTI2 , and 30-35% is locals with off-exhange customers CTI4 , this accounts for the majority .

But just because the largest volume comes from local to off-exchange customers does not mean that all of that volume is retail or pure speculation .

I know for a fact that institutions and hedge funds disguise there hedging activities this way and by trading in 1-3 lot size using various hidden order or iceberg systems.

Also when institutions are trading various baskets of stocks they often seperate the buy and sell side baskets into two single sided lists and with the appropriate tracking error use the ES to hedge each side of the basket.

So in reality I think the hedging acivity is more near 40/50% range...
 
Rally After Negative News

F2 Comments: The market rallied after negative early news. That is significant. This brings in short covering and new buying. Will have to confirm w/the OI numbers tomorrow morning, but the Bond finished higher again today. Would have liked to have seen more volume, but Friday’s news may have cut today’s volume. Tomorrow’s news: ADP Employment Index is expected at -20K;Jobless Claims at 425K; ISM Services at 49.0; and DOE Crude Inventories. If the ES is sideways to lower, want to buy 118-01/05 and see if 118-20/22 can be taken out. If not, will look to the short side of the market.

F2PM9-03.jpg
 
Signs of a Failed Retest

On Wednesday, September 3rd, the Bonds had been trading in a relatively narrow range of 118 to 118.12. At 10:01 118.04 was being retested.

The attached chart is a 3 bar reversal. The number in the rectangles is the delta (contracts traded at the ask minus contracts traded at the bid).

As you can see, the selling has dried up. No one was willing to sell at 118.04. There was also a deceleration square and, one of our new indicators, a diamond. The diamond is indicative of even more severe decel than the square.

Buying in the 118.06 area allowed you to enter into a nice 15 tick run.
 

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Bonds Higher and Holding

F2 Comments: The market was higher again off of supportive early news and August Retail Sales reports. The ES was off due to this news and finished weak. Tomorrow’s news as forecast is supportive for financials: NFP is expected at -70K; Unemployment at 5.7%. If this news is worse than forecast, i.e. these numbers are higher than the consensus, the Bond can trade higher. A news day trade is on tap for tomorrow’s first trade. Enter the market on the first setback w/the news. Exit, if the post news range isn’t extended.

F2PM9-04.jpg
 
Friday Recap and Idea for Monday

F2 Comments: The unemployment news was supportive and the ZB hit 120-08 off this news. Failure to generate follow through buying brought in the inevitable EOW profit taking as longs liquidated and short term traders initiated new shorts. The Bond closed weak and is pointed lower on Monday. If the selling doesn’t continue Monday morning, given Friday’s structure w/volume high in the distribution, it can snap back quickly. The ES will also be a factor. If the ES’s rally continues Monday morning, the Bond will probably see more selling early in its session. No scheduled news to drive the markets on Monday. Focus should be the direction of the ES. The late selling closed the Bond at 118-20. First sell is 118-31/119-03. Back up sell is 119-11/15. Cover, if 11816/20 holds as support.

F2PM9-05.jpg
 
Sticking to the Basics

The Bonds on Monday 9/8 provide a perfect example of the TIE Setback trade.

The market had just rallied 30 ticks, then pulled back 10 ticks. If you'll remember, a pullback of 6 to 12 ticks is required for this very basic trade.

The push to a new low occurred on lower bid volume then the previous bar. There was also a deceleration square, indicating that the selling had dried up, a rotational arrow, and a B (buy) designation.

Taking the trade when price rose above the signal bar would have provided you with the potential of 15 ticks profit. If you have a business plan of 4 to 6 ticks on a daily basis, you were done for the day.

4 ticks is worth $125 per lot traded. If you trade 220 of the 240 trading days in a year and can achieve 4 ticks a day, that is a yearly income of $27,500 per lot traded.
 

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The Setback Trade on Tuesday 9/9

Attached is an actual example of the setback trade's implementation on Tuesday 9/9.

Point 1 was the initial setback trade of the day - a 6 1/2 tick pullback from the trend. This trade didn't produce the desired 4 ticks of profit I need to make my daily business plan. Although it achieved 2 1/2 ticks of profit, I only took 1 tick out of this trade.

Point 2 represents a 6 1/2 tick pullback from the new downtrend. There were 9 ticks of potential profit in this trade, which completed my daily business plan.

Point 3, for those who want more than 4 to 6 ticks of daily profit, was a 6 tick pullback from the new uptrend. There were 23 ticks here, depending on your skill and patience to stay with the trade. There were no major retracements to get you out.

All three setbacks were triggered with a rotational arrow, a B or S indicator, and a deceleration square. They are textbook examples.
 

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Finishing Early - Setback Redux

Ok, I'll admit this is getting a little boring, but I'm trying to make a point. The best time to trade the Bonds is early in the day and you can make your business plan early, then watch the rest of the day. Or do something else for enjoyment.

And you don't need 20 different set-ups. Internalizing 3 or so basic trades that afford you a statistically relevant edge is all you need.

That said, here is the 1st setback trade from Tuesday, 9/11. 1st setback trades are the best. 2nd setbacks work well but are more apt to fail. Taking a 3rd setback is probably getting a bit greedy.

The basics revisited - 8 tick pullback, rotational arrow, deceleration square, "B" indicator = winning trade. This one had 10 tick potential. The risk was 3 ticks.
 

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