Trading when markets are stagnant and consolidating is very difficult, but certainly possible, if liquidity remains good, as with the treasuries market. Fortunately, the treasuries futures have both excellent liquidity at all hours of the day as well as tight spreads. I don't recall ever seeing the 10-year treasury futures trading with more than a one-tick spread. Ever!I have seen countless patterns like the one above in which a sudden move occurred, but there was little or no follow-through activity. From my experience, one never knows whether prices with break up or down at the end of such a pattern. I've noticed that the Exponential Moving Average tends to operate as support or resistance (as in this case). However, once a price bar closes on the opposite side of the EMA, as they appear poised to do here, the likelihood of a move in the new direction increases. In this case, the treasury bears haven't been successful in pushing prices lower. They appear to have exhausted themselves. Once prices close above the EMA, higher treasury prices are much more likely. Just the same, "anything can happen" (Mark Douglas, Trading in the Zone). I have also seen examples where prices pushed through an EMA, and then the opposing forces rallied and were finally able to force prices back through the EMA once again. Like I said: anything can happen!
In a situation like the one shown above on this 15 minute chart, I will trade fewer contracts than I would in a rapidly-moving market, and I will exit very quickly as soon as my charts show the slightest hint of moving in the wrong direction. I will be satisfied to take just 2-3 ticks of profit, or even just break even. Profit is profit. It is a temptation, since the profits are small, to increase the size of my position so I can squeeze more profit from these tiny trades. However, the higher risk of these small trades must also be considered, so there is a definite trade-off there.
One of these days in the near future, I will discuss Chaos Theory and fractals. It's a fascinating subject. I look for fractals as add-on or re-entry points in my trading. Understanding them is very helpful in trading.
