Woodie's Discussion Group

April 17th, 2003


Trading US T-Bond Futures

Presented by Ken Churchill







Audio Commentary -- click here

Lucas and Fibonacci Numbers


Edouard Lucas (1842-1891), gave the numbers
0, 1, 1, 2, 3, 5, 8, 13, 21 ... the name "the Fibonacci Numbers",

He found a similar series occurs often when investigatng Fibonacci number patterns:
2, 1, 3, 4, 7, 11, 18, 29 ...


Easter Bunnies (alias: Reproducing Rabbits) ??

"The Fibonacci Numbers:
Leonardo da Pisa (1175-1250) wrote a book "Liber Abaci" in 1202 which remained obscure for centuries. In the 19th century, a great French Number Theorist, Edourd Lucas (1842-1891 ) who discovered it, was fascinated by a problem described in the first chapter of the book known as the famous 'breeding of rabbits problem'. When a female-male pair of adult rabbits is put in an enclosure to breed, and if the rabbits are assumed to produce a female-male pair of young ones every month, and when it is also assumed that the young ones start reproducing at the same frequency from the end of the second month of their birth, the number of pairs of rabbits will increase in the following manner: 1,2, 3, 5, 8, 13, 21, 34, 55, reaching 233 pairs at the end of one year. Any term in the sequence (excepting the first) is the sum of the two preceding terms.

Lucas was very fascinated by the breeding of rabbits problem, as he could visualise some of their properties. He named the sequence as Fibonacci Numbers, or the son of Bonaccio numbers since Bonaccio was Leonardo's father(and filius or filio means son). Such a nickname was chosen for Leonardo's numbers because Lucas felt that he was not worthy of mentioning the real name of such a great mathematician who has given the gem of numbers."

Reference information on Lucas and the Fibonacci Sequence




Swing Bar Counts:


For bonds, swings often contain the Fib #'s 3,5,8,13,21 and the Lucas #'s 18 & 29. Thus, keeping track of such counts helps to anticipate turning points.
The "ebb and flow" of momentum on charts of all time frames reflects this pattern. Simple, but very practical, this tool (counting the bars) can often yield improved entry and exit points by reinforcing the "patience" to wait for the next series of bar counts to be completed.

Bar Counts Chart -- click here to see daily chart

June Bonds, daily chart, shows Fib relationships... Anticipating the bull and bear scenarios from Fib Counts and the BOS sequence.



Top and Bottom Patterns:

Audio Commentary on Patterns -- click here

Before entering a trade, ask yourself

"has today's TOP been made, or has today's BOTTOM been made?"

Once confident of your answer to this question, it is much easier to take, and hold, a position. Various patterns are easily recognized after the fact. In my opinion, the bond daytrader can get the most out of recognizing these basic patterns on an intraday chart:

** Key Reversal
A single bar makes a new extreme price for the swing and then closes in the opposite direction, beyond its opening price. These ususally are strong indicators. Note the Bar Count on next chart, too.
** Key Reversal

** J-Hook Top
A new extreme price is made for the swing, with that bar closing at or only 1 to 2 ticks from the extreme. The open of the next bar (the HOOK bar) is then at the extreme (or making a new extreme) and the bar then reverses and closes opposite of that extreme.
** J-Hook Bottom

** Doji Top
The Doji Candlestick formation (open and close of the bar are equal or only 1 tick in range) is seen frequently. It often marks the 5th, 8th, 13th, 18th or 21st bar of a swing and signals indecision, that a reversal of some duration is pending. Double Doji-- consecutive bars that are both Dojis-- often precede breakouts.
** Doji Bottom

The classic "double top" and "double bottom" are also important.



Daily Range Statistics for T Bonds:

Audio Commentary on Range Statistics -- click here



In the ES, Woodie's "auto 10" trade is worth $500 per contract. In bonds, this is the equivalent of a trade that yields 16 ticks. Very often, bonds are "directional" for the day -- meaning that if price is moving higher, bonds tend to "push" up to the close, making the high of the day near the closing bar. Vice-versa, down days tend to "push" lower, making the low of the day near the closing bar. The following data is taken from 339 trading days of Open, High, Low, and Closing prices of the lead US Tbond contracts. This includes Dec.3, 2001, to April 11, 2003.

** Range Statistics Spread Sheet & Chart

Today's 5 Min Chart

These stats show a consistent average daily range of more than 16 ticks. If you correctly answer the question, "has today's TOP been made, or has today's BOTTOM been made?" , even giving up a few ticks to enter a trade after the extreme price as been tested, an "auto 10" is possible more than 76% of the time. Developing patience to allow the statistic to "prove itself" may greatly improve trading profits.

You are encouraged to "do your homework" and find the relationships between your primary market's range statistics and your trading objectives. The time and effort will be well spent.

Good trading to you,
Ken Churchill

Audio of the Question & Answer session -- click here

Excel Range Spread Sheet -- click here



Expected Range Calculation

Part 1: Take (H - L) for last 3 trading days and average. The "true range" would include gaps. So if today is Tuesday, average last Thurs, Fri, Mon ranges.

Part 2: If today is Tuesday, take (H-L) for prior 5 Tuesdays. So last week Tuesday, the Tuesday before, and one before, etc. Take the last 5 trading Tuesdays, so if market was closed one Tuesday, go an additional Tuesday into the past. Average these 5 days.

Part 3: Average results of Part1 and Part2. This gives an estimate of trading range for today.

Part 4: IF this is an NR6 day and expanded range is therefore possible, add 50% to the expected range from Part 3.