Futures and options trading contain substantial risk of loss and may not be suitable for all investors.
What we see here in the T-Bond chart above is what we consider a very reasonable trade set up. There is always risk when making a trade so choosing them under some set of guidelines is very advisable.
In the case of the T-Bonds there was a reversal day bar at its high of October 2. The high registered that day was 123-25. The current price posted is 121-30. Presuming a short entry position from this price level we would think stop protection could be a price just above the recent high posted of 123-25.
What is also very interesting to us is that the upward advance in price from the June 11 low of 110-08 occurred with a reversal day bar. Therefore a significant low was made with a reversal and there is a similar opportunity for a significant high having been made with a reversal.
In determining where profit objectives could be we have included the Fibonacci Retracement levels using the low and high prices mentioned as the base to calculate the ratios. We have observed over time that markets frequently retrace 50 percent to nearly two-thirds of a given move. Thus in this case a retracement of .500 from the low to high would provide a target of approximately 117-00. The .618 retracement level is approximately 115-13. In gauging target areas for a declining price we typically feel comfortable at least initially, to shoot for the .618 retracement. It seems market prices find it easier to fall than they do to rise. In nature it is easier to push something down than it is to hold something up.
We hope this has presented a situation for consideration.
Jeff Majer
Diego Pilar
CB&S Division of MF Global Inc.
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