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Spread
Scan Issue: October 10, 2007 - Volume 165
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Today we consider an interest rates spread: long December 07 30 Yr T-Bonds and short December 07 10 Yr T-Notes (USZ7 – TYZ7). The spread has been in a trading range since June 2007. Now, after testing 1^16 again in September 07, the spread seems to be ready to climb higher. Traders might want to enter around 1^16 or wait for a breakout of the October 07 high at 2^15.
Traders may want to enter the spread at a value of 2^16. Please ask your broker about the margin. Suggested risk is $500. Initial projected objective is $500, then a move higher. Basis is seasonal (app. 10/18 – 11/16) and a Ross Hook.
On September 25 we told subscribers of our professional daily spreads & position trading newsletter Traders Notebook, "Consider selling the December Japanese Yen at 0.8781 stop market (all session). Initial margin is $2,700. Suggested stop at 0.8861 (app. $1,000). First suggested target at 0.8691, then lower. Basis is a TTE in front of a 1-2-3 high. Comment: The Yen has been in a sideways market since August 07. But even if the 1-2-3 high is in a Trading Range, there is a good chance the market will take out all the stops down to 0.8684."
Here's how we suggested managing this trade:
09/26 Short at 0.8781. Suggested stop at 0.8861.
09/27 Suggest moving stop to 0.8853.
10/01 Suggest taking some money from the table and moving stop to break even.
10/04 Suggest moving stop to 0.8767.
10/05 Suggest moving stop to 0.8733.
10/08 Suggest moving stop to 0.8693.For more information about our daily newsletter, visit our Spread Website to find out more about Traders Notebook
Questions or Comments? Please email us: support@spread-trading.com
Student's Question: "Andy, what do you see as the advantages of spread trading?"
Andy: I think there are quite a few advantages of spread trading. In addition to the ones you can read on our web site (www.spread-trading.com), I will name two more:
Spread trading is long term trading: In my opinion, trading becomes more difficult as the time frame you use for trading becomes shorter. Spread trading is position trading, based mainly on daily charts. The trades go from a few days up to a few weeks or even a few months.
No stop orders in spread trading: This is something that scares many outright futures trader. There are no stop orders for spreads, and you have to use a mental stop for your spreads. But the advantage is that no one can run your stop. Stop running is a major problem when trading outright futures. It happens very often that a market moves up and down a lot during the trading day, taking out all the stops, just to end at the same level as the open.
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads or outright futures is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!