It appears that with a Fed that, based upon FOMC minutes yesterday, has clearly signaled that they have stopped cutting rates, the best bet now in futures may be to sell treasuries as interest rates begin to rise. This appears to be borne out by the markets this morning, as treasuries are being sold and one one of the solid market movers today. Go where the movement is! That is one of my mottoes.Treasuries are one of my favorite instruments to trade because they are among the most liquid of all futures and the margin requirements are modest. Treasury futures have margin requirements that are roughly 1/4 those of stock index futures. I can therefore take a larger position in treasury futures than I would ever dream of doing with stock futures.
Execution, Execution, Execution
I am told that the three rules of real estate are location, location, and location. In futures trading, execution is the first law of success. This requires deep, constant liquidity for a trading instrument.
The combined open interest for treasury futures outnumbers the open interest for even the stock index futures. Prices for treasuries also tend to move more gradually than other futures. While I might take 10-20 trades each day for soybeans, I might make only 5-10 trades for treasuries, even though treasury futures trade 3-4 hours longer each day than grains. These factors make treasuries easy to get excellent executions, superb and accurate fills, and to enter and exit easily and quickly. Treasuries are also a good way for new traders to cut their teeth because the charts tend to move more slowly and gradually. They are good for practicing their trading skills.
In contrast, I haven't traded energy futures over the past year (despite the obviously good returns for energy traders who are long) because while crude oil futures are very liquid, they tend to print so rapidly across the screen that I am unable to get good executions at the proper prices for my methodology. Just watching the crude oil futures print across the screen can often be a dizzying exercise. Thus, I stay away from crude oil and other energy futures.
I also tend to stay away from grain futures in the first 5-10 minutes of the day trading session because they move too quickly for me to get accurate executions. I will usually wait for a slightly more subdued market in which trading conditions are more sedate and I can get good executions under more stable conditions.
Tick Bar Adjustments
Likewise, I have found that the Russell 2000 futures, which I used to trade exclusively at one time, tend to print too rapidly for me to be able to get good executions. Even adjusting the number of ticks in a bar for the Russell 2000, I haven't been able to find one that looks clean on the charts. I prefer to trade the Dow mini because the charts tend to trade more cleanly with less market noise. Market noise is, in my humble opinion, deadly for small traders like me. It will drive prices through stops and convince traders to exit prematurely with losses, often just before the market makes a spasm back in the other direction that would have resulted in a profit. I always look for clean charts, and will occasionally adjust my tick bars until they look clean. Only then will I trade them. Anything else has too much market noise. And as I said, market noise is deadly.
