Treasury Trade Setups: My Playbook
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Trade Set Ups In The Treasuries
Below are all the trade set ups I look for. Use the Legend for reference on what the various columns are in Jigsaw Daytradr. These are the set ups I look for, nothing more. No charts, no indicators. I am a pure order flow trader. At most I’m comparing the various Treasury products and trading them against each other, or using information from one product to trade another. I understand this isn’t for everyone. I don’t care about your charts though, your moving average, your candlestick patterns. It’s not how I trade. As I said from the start, this isn’t a full futures trading course. This is how *I* trade futures.
This is my most used set up. I mentioned context earlier as well I mentioned one of the main aspects to the treasuries is they are very well correlated. The catchup is all about this correlation, looking at several products (I watch ZN, ZB and trade UB typically), and seeing when one of the products, usually the Ultra Bond, is out of step.
If ZN and ZB are at their highs of the day for example and seemingly going to press higher, but UB is hanging out in the middle of its range, usually the play is to go long in UB. The idea being it will eventually catch up to the other products and also get up to its highs of the day. The reason I like trading UB is because it does tend to travel the most in terms of range, there’s a lot of profit potential in it. It could move 10 ticks when ZN only moves 2.
In this first video, I have a more dramatic trade example of the Catch Up.
In this second example The Catchup is not as as big but still demonstrates how the Catchup works.
The Break Low & Break High
This is probably my 2nd most used and favorite trade. When the price action is right at the high or low of the day, and all the treasuries respective action points to them breaking further, it’s time to jump in and grab some ticks. If it doesn’t break, you get out. When it does break though, you tend to get a bit of a flurry of activity, and usually several ticks, not just 1. It might only be 3, might be 5, hard to say. Each situation is unique. Breaking that high or low though usually, not always, leads to some stops being triggers, more people jumping in and that quick push.
I typically get out after the break. Take the few ticks and stand back. A lot of times the break will be followed by a quick pull back. All the people like you and me jumping in and then out for a quick profit send it right back a few ticks to where it was.
In the video you’ll see an example of when the treasuries break their high.
Every day is unique, and sometimes products just bounce back in forth in a range. The key is recognizing what is happening at that time and taking advantage of it. If you see a product bounce in a range for an hour, there comes a point where it’s worth while to try to make the range work for you. The concept is simple, you expect it to stay in that range. When it’s at the high of the range, sell. When it’s at the low of the range, buy. You also have a very, very clear stop point. If it breaks the range, you are out.
I try to get in on these at pretty much the very high or within 1 tick, or very low. Then you know if it’s going against you even 2-3 ticks it’s time to bail. Compare that to getting in somewhere say 75% of the way up in it’s range. If it goes a few more ticks against you, technically it might still be in its range. But you don’t know if it’s going to be the time it breaks out or not, and if it does, now you just ate a healthy loss on that trade because you didn’t wait for it to hit the top of the range before going short.
In this video I show a trade when the treasuries are in a fairly tight range on a Friday afternoon and the action slows way down.
The 1 (or 2) Tick Scalp
When the treasuries are in a tight range, sometimes I’ll just go for a 1 or 2 tick scalp. Typically this is an evening session, but there is plenty of opportunity during the day. I don’t trade this way often, but sometimes it’s a great way to piece together several small wins. They don’t all have to be home runs, base hits add up.
In a lot of ways this is similar to The Range trade, but I would say in an even tighter range. When I think of a Range, I’m thinking 5-8 ticks for Ultra Bond. When I think of the 1 or 2 tick scalp, that’s exactly the range, 1 or 2 ticks. I wouldn’t really consider 1 or 2 ticks a “Range Play”, it’s basically flat lined and you are just playing off buyers and sellers at the immediate price action.
I set an automatic take profit to be trigged for this type of trade. Ideally they are a quick hit type of trade (less than a few minutes). If I entered and the price stalled or went down a tick or 2 I would be getting out and moving on. They won’t all be winners, but I’m basically playing the odds that there’ll be far more winners than losers over time. The key is being okay admitting when one is a loser and getting out for a small loss.
In the 2 videos below I show 2 examples of a 2 tick scalp. Both of these are from the same session, I’m just trading what is a very tight range in the treasuries, grabbing a few ticks each way.
The Moving Train
The Moving Train isn’t as frequent, but when it happens it can make a day, week or month in 1 trade. Usually some event triggers a flurry of buying or selling, and the price just cascades and doesn’t stop (at least for a few minutes). A good example is around economic news releases, like non-farm payroll, or FOMC (Federal Open Market Committee) meeting, which are once a month. The news can send all products soaring or tumbling.
The way I usually play this is to be ready to jump in, and more important ready to jump out if I’m wrong. If you are right though, you can jump on a moving bullet train that is sending you to profit-land.
Here’s a dramatic version in image form of this. I don’t trade off candle stick charts but I think is an easy way to visualize the action in the Ultra Bond. See that big red candle in the middle? The price fell from 197’29 to 196’18 from top to bottom. Obviously there was some pull back, another push down, then recovery. This is a 1 minute chart, so things do happen fast.
No one is saying you could have gotten every single tick out of that trade, but to put the dollar amount in perspective from 197’29 to 196’18 is a 42 tick move (the bonds trade in 32nds remember). 42 ticks X $31.25 per contract = $1,312.25 per contract in 1 minute. Again, the reality is you’d have to quickly assess “okay this is going down, shoot I better get in, okay I’m in, yeeee hawwwww…. okay it seems to be slowing down, wait there’s some back tick, I’m out”. Maybe you get 20 ticks. Not too bad.
Below is a video example of a moving train, not as dramatic as the image above, but still shows that when you see strong movement in one direction with no signs of slowing, jumping on that train with the plan to jump off mighty quick if it turns on you is a trade worth taking, if I do say so. The winners will pay off big, the losers you get out fast and just take your few tick loss and move on.
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