Monday, June 8, 2015

Can't Catch Them All

You will sometimes miss opportunities.  If you cannot accept that and always need to try to catch every move, what ends up happening is that you end up compromising your entry points and chasing.


For example, let's say that you were waiting to buy 10 year Treasuries at 2.45% yield on Friday, and it got to 2.44% yield, so you missed it.  Then you see the bonds bouncing from the reflexive selloff and you decide you need to get this move that you've waited 3 weeks for and chase to buy when Treasuries are at 2.41%.

So by missing your original target entry point by .01%, you get in at .04% higher than originally wanted just to try to catch that bounce move.  This ruins profitability.  If you can just stick to your setups and not let it bother you when you just barely miss your entry points, you are more than half way there.  Sure, a big part of trading is recognizing what is likely to happen with a stock or bond or commodity, but an equally big part of trading is maintaining psychological discipline and not get caught up in things like fear of missing out (FOMO) chasing, revenge trading, and trading bigger/averaging down to make your money back quicker.

An underrated aspect of trading is learning to accept being imperfect.  Part of being imperfect is missing opportunities that slip between your fingers, selling or buying a bit too early, missing the bottom by a day or two, or selling for a quick loss right after you get in because the stock just doesn't feel or act right. Sure you feel like a idiot, selling 10 minutes after you got in for a quick loss, but if the original buy was a mistake, there is no need to compound that mistake by holding and hoping it goes in your favor.

 If you always strive to be perfect, you end up falling into overtrading traps:  microtrading, trying to catch every wiggle, or just flat out chasing when you missed your entry and the price gets away from you.  

I have been sucked in to those pitfalls many times in the past, and it is a part of being a human trader.  Sure, if you can computerize everything, you get rid of many of the psychological hurdles, but you also eliminate a huge part of trading, which is predicting the future based on hard to quantify intuition and experience.  That is why I continue to just trade discretionary because this intuition and experience is a big part of my edge, something I cannot program into a system.

It is a rather uneventful Monday morning, the Treasuries are slightly higher from Friday's close, while Bunds are a little bit lower.  Unlike the last spike in Bund yields in May, this bounce off the bottom is much weaker, and the yields have been staying above 85 bps for most of today's trade.  It seems like yields want to go higher again this week, to test the longs one more time before we get a lasting bounce.  I am looking for another run higher in German Bund yields this week, which should pressure Treasuries.  Still waiting for 2.47% 10 yr.

10 comments:

Unknown said...

Hello, I am curious if you trade treasury cash or futures. I am relatively new to trading ZB/ZN futures, but have been accustomed to the way they're quoted (for example 149'20 etc). I was wondering why you always refer to treasuries by yield level. I am having a hard time translating mentally yield to price.

Market Owl said...

Trade futures. I refer to yield because the price to yield relationship changes everyday for the 10 year note/30 year bond because of carry, yield curve flattening/steepening, etc. Also, ZN is actually a 7 year futures contract, because cheapest to deliver Treasury is around 7 year in maturity. ZB is actually more like a 20 year futures contract, not a 30 year.

So there is no futures contract that is a 10 year Treasury equivalent, and most bond traders use the 10 year as the benchmark for support/resistance levels.

Market Owl said...

By the way, some useful links if you want to know the current yield for the 10 year and 30 year Treasuries, as well as 10 year German Bund.

http://www.investing.com/rates-bonds/u.s.-10-year-bond-yield

http://www.investing.com/rates-bonds/u.s.-30-year-bond-yield

http://www.investing.com/rates-bonds/germany-10-year-bond-yield

Unknown said...

it seems you look at a variety of things at the same time: 10 year yield/30 year yield/bund yield in addition to price action of ZB/ZN/FGBL. I presume it's because you're more or less a position trader. I'm used to day-trading ZB only by focusing on the price/volume alone. it has been an eye opener for me during the past month or so since I started reading your blog.

thank you

Market Owl said...

Yes, it helps me predict how Treasuries will do from a relative strength perspective, across maturies and compared to other sovereigns like Bunds. I prefer to get long Treasuries when Bunds look like they have either bottomed or look to rise, and try to stay out of the way when Bunds look weak or when Treasuries are underperforming Bunds. Right now, the Bund is probably the main driver of the recent Treasury weakness.

I do some day trading but I am more of a swing/position trader. I find it easier to predict moves occurring over two days to two weeks rather than intraday.

Unknown said...

I find it easier to predict intra-day moves rather than over-night (let alone over-week), but that's just different trading styles.

by the way, since you're into relative strength across maturities and countries, have you thought abut/traded spreads?

Market Owl said...

I sometimes trade the ZN/ZB spread, but I am mostly trading outright positions. I have never traded a Treasury/Bund spread, and not interested at the moment.

Anonymous said...

Hi MO, what is ur thoughts on rate hike? Do u think it will happen this year? Thx

Market Owl said...

Fed will be like Kentucky basketball players: one and done. So a measly 25 bps hike, which I expect in December, will be it. Dont even think they will raise rates in September because they are such pansies.

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