Trader Note

Stay out of bonds when Draghi Speaks. They are going to move hard.

Bing-Bang-Boom

In computer dominated markets, price will swing hard on news releases. Often when this happens, the futures market is open but the stock markets are not. Because the treasury market opens early and has considerable volume, it can be a good place to capitalize on a news release. If that news release is near enough to par, the BING-BANG-BOOM will pay off.

Price will often revert back to a level near the pre-market release price (nearly Mean Reversion trade). This means that you can chop the initial reversal as well as the secondary reversal.

 

 

Release Example:

 

CPI_release.jpg

 

 

 

ZN_5min_wide_2016-08-16.jpg

 

ZN_5min_close_2016-08-16.jpg

 

ZN_1min_2016-08-16.jpg

 

If the release is NOT near par, the entry and exit points used in the BING-BANG-BOOM can be used as a scratch. On some occasions, traders may want to puke or scalp their way out of such a trade. If you are new to trading, use stop-loss orders to exit at your max loss for a single trade.

DOM setup - Depth Of Market Ladder Loaded (DOM after release shown):

Dom_copy.jpg

 

The trade shown here is in USA 10 year T-Notes: ZN

Setup: Slow markets are better. It means that prices are stagnant and markets are looking for a catalyst.

Expectations: A selloff occur deeper than a bid higher market. This means that on the release, a selloff will cross two support levels lower on a move. On a move higher, often it will lightly cross a single resistance level.

 

Order placement

High side:

Put a LIMIT SELL order in on the first resistance level (or 1 tick in front).

Put a second LIMIT SELL order 1 tick in front of the next higher resistance level.

Place a STOP-LOSS BUY order behind the second resistance level by at least 2 ticks (more if you can afford the risk) The wider, the better because it is highly likely to trade back quickly. You don't want to miss out on profit by being too cautious. Be prepared to pull limit orders if a corresponding order is triggered in the opposite direction (or use ORDER-CANCELS-ORDER if your software allows for it).

 

Low Side:

Don't use the first support level as it will likely breach. Price sells-off faster than it moves higher.

Place a LIMIT BUY order 1 tick in front of the second support level.

Place a second LIMIT BUY order 1 tick in front of the third support level.

Place a STOP-LOSS SELL order at least 3 ticks below the third support level. More if you can afford it. Be prepared to pull limit orders if a corresponding order is triggered in the opposite direction (or use ORDER-CANCELS-ORDER if your software allows for it).

 

After the release:

When the release occurs, markets will move fast. This will be primarily driven by HFT computers and will likely run over at least one, if not both of your orders. You will see the price action stall, just as fast. That is when you get the reversal towards the pre-release price and then beyond. Normally, the reversal happens within about 1 minutes of the initial release and within 5 minuets of the release.

As price reverses, pull the farther mirror order (exit order) that does not match your existing position.

Example: If you are sold for 2 orders, move the lower BUY order to the higher support level.

Example: If you are bought for 1, only keep your lower SELL order. If you are risk adverse, move your SELLl order to the pre-release price.

 

Once your exit order has cleared, then you just made a big chop. This is the BING-BANG. Bing on the high side for an entry, Bang on the low side for an exit.

 

If you do not expect markets to collapse, then go for the BOOM. This is a secondary order on the back side of the resistance or support level of your exit orders with a corresponding STOP-LOSS order. This will be a LIMIT order that will provide you with a “cut and reverse” style entry that does not rely on AT-MARKET pricing. If you try to rely on AT-MARKET pricing, then you’ll be getting a horrible price from the machines between you and market.

 

Using this method can be considered a "risk" trade, but when your order takes a second to reach market and return, then using "market" orders wont work. This method will get you into market at a good price and out at a good chop (if price moves).

If price does not move to hit your orders, you lose nothing.

If you only hit one side, you still profit on mean reversion.

If price moves hard, your stop-loss will allow for and exit without major loss. This still makes for a better trade than a badly placed market order. 

 

When your BING-BANG-BOOM hits, you'll be yelling this at the market while you do a dance. Walk away happy at a great chop.

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