We have been very busy with a project and traded very little this past week – we are making a video about See the Music of the Market.

We suspected that the circus in Washington would keep the markets on edge – and no one having any idea which way the market is going to go next – or when!

What little time we have had available we mostly have just watched the US Bond Market – one of our favorites.

There has been substantial overnight volatility followed by long periods of very light volatility. Volatility is the two edged sword we traders must deal with. It’s kind of like sex – we have to have some, but too much can be a problem.

The periods of low volatility had me watching my trading numbers very carefully

What are my trading numbers?

Short term trading is all about oscillations – oscillations must provide a reasonable set of trading numbers. To arrive at the trading numbers for a market I simply start with the minimum risk necessary to trade that market. In the case of Us Bonds I consider it to be 4 ticks. From that I know immediately that the minimum oscillation I can trade needs to be at least 10 ticks. Here is the math:

Minimum risk = 4 ticks

Reward to risk ratio = 2 (the minimum Reward to Risk Ratio – we call it RRR – for any potentially profitable trade needs to be at least 2)

2 X 4 = 8 ticks (the minimum potential profit to justify the risk)

Therefore my, minimum oscillation potential to trade must be at least 10 ticks for the US bond market. It is best to just stay out of the market if you cannot kind a trade offering at least 10 ticks.

With a little practice, a trader can just visually do this calculation – which can be helpful in fast paced short term trading.

And those periods of extreme volatility – its best to avoid those as well – that sword cuts both ways!


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See the Music of the Market

The unique trading method that is Trading Between the Lines