Hello and welcome to all students to the first Safety in the Market newsletter for 2012. In this article I’d like to discuss the Euro Bund (code FGBL-Spotv in ProfitSource).
Firstly, let’s take a look at the chart of the Euro Bund, which has been in a long-term bull market since 1991. This is shown in Chart 1 below.
click chart to enlarge
In a previous article, I discussed the equal ranges this market had made during this time period. If you would like to revisit that article, you can click on this link: Traders Looking Forward to a New Bond Age
This market is a prime example of just how good David’s lessons in the Number One Trading Plan are, especially those contained in Section 11 – Price Forecasting. It is well worth studying David’s lessons in conjunction with and those taught at the 3-Day Interactive Trading Workshop.
The price analysis on the Euro Bund leads me to believe that we are at, or very close to, a major high in this market. The big question for most new traders, however, is “how do I trade it?”
The Euro Bund trades on the “Eurexchange” and is easily accessible using CFDs through your optionsXpress platform. It is listed under the heading of “CFD – Treasuries” and the sub-heading of “CFD – European Interest Rates”, as shown in Chart 2 below.
click chart to enlarge
This product is not the Euro Bund futures contract, but a CFD over the Euro Bund futures contract. It is designed to track (almost, but not quite perfectly) the movement of the Euro Bund futures contract.
You can see the price at the close of trade on Wednesday, January 11 was 139.24, if you wanted to sell, or 139.27 if you wanted to buy.
In the order window shown above, for every “quantity” of 1, you would be buying 1 CFD on the Euro Bund, with a face value of €10,000. This means for every 0.01 movement, you would make or lose €1. This is currently worth around $A1.25. The margin requirements for a single CFD are currently around $A280.
I believe this market will be down around the 110 level by the end of 2012. This is a move from 139 to 110, or 2900 points.
I’d like to finish this article by issuing two challenges for students who would like to follow up on them.
Challenge Number One is a valuable lesson I learnt from Noel Campbell when I was a Platinum Student, and that is to watch a market every day for the whole year. It doesn’t have to be the EuroBund, but pick a market you would like to trade at some stage, and check the swing charts every day. Ideally, keep a hand chart of this market. You will be amazed at what you learn from this exercise.
Challenge Number Two is to construct a weekly bar chart of the Euro Bund (or the market you are following) for its entire history. The Euro Bund was born on November 23, 1990, so you have about 21 years to cover. This should take up around 5 sheets of Safety in the Market charting paper (which can be obtained by contacting the office if you need a supply).
To give you a rough idea of how long this would take, there are around 540 balls bowled in a day of test cricket. There are 1092 weeks in 21 years. Therefore, if you drew one line on your weekly chart in between each ball that was bowled, you could complete this task over a single weekend, while still following every ball of the cricket live!
I believe the weekly swing chart will be extremely important on the Euro Bund in 2012 and beyond, and well worth studying and hand-charting.
I’d like to wish all our Safety in the Market students all the best for a happy and prosperous 2012.