I started trading the US Treasuries (Ultrabond and 30 Year Bond, UB & ZB) about 6 months ago, switching from Crude Oil (CL). While I loved the idea of being a hot shot crude oil trader, I wasn’t that great at it. Not horrible, but really wasn’t getting much traction.
For a few reasons I switch to the treasuries, or bonds as I usually refer to them, for the reasons below. I’m not saying they are for everyone, but I’ve had far more success with them.
Big Tick Size
Most people trading the equities are used to $5-$10 tick sizes. Now, these products do move, so it’s not hard to grab a 3 tick movement and there you go, $30. I prefer to go with smaller movements using bigger contract sizing in a product that has a higher per tick profit. The 30 year bond and ultra bond (ZB and UB) both have $31.25 per tick movements. Put on 10 lots of ZB, grab a 1 tick move, and you have yourself a $300+ winner.
A little less rowdy are the 5 year, 10 year and ultra notes (ZF, ZN, and TN). They come in at $15.63 per tick. They also are even less volatile. So on a day I want to take things slow, scalping out 1 tick in these isn’t so bad.
Low Volatility
Mentioned above, but the treasury products have far less volatility than other products most people are trading. The 5 year note (ZF) might only travel in a 10 tick range all day. The 10 year travels a bit more, the 30 year a bit more, and the ultra bond traveling the most. Even range aside, you won’t often see a bond move 20 ticks out of no where. You’ll have plenty of opportunity to get out of a trade that isn’t working out before it’s wrecked you.
Correlation In Bond Markets
Most of how I trade the 30 year and ultra bond is by watching the 10 year. All the treasuries tend to move lock step, so when they get a little out of sync, there is opportunity to get in and wait for the correction. It won’t be much, remember, there isn’t much volatility. But for example if the 10 year is pushing the low of the day and the 30 year is 3 ticks above its low, I’m fully expecting the 30 year to catch up and start pushing its lows also, as an example.
Opportunity to Scratch Bad Trades
Along with the low volatility mentioned above, you can usually get out of a trade for break even, maybe a 1 tick loss, without much effort. As long as you pick entries fairly well, if the volume starts to turn on you, you’ll have time to process what is happening and get out. You don’t often get that opportunity with other products as the train leaves the station fast.
Conclusion
That’s a little insight into what drew me to the treasuries. They won’t be for everyone as they are a slower moving product, but if you are looking to scalp, the bonds might be what you are looking for. Big tick size, low volatility, and ultimately the ability to sniper pick entries. My kind of product.
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