Eating The Dog Food

When I read a recommendation about a stock or a product from a so-called expert, I am usually a skeptic. Does the individual believe what was said/written? Does the individual really intend to do what was said/written? If you remember back to my "US 10 Year Notes, What's Next?" blog post, I summarized the situation as follows:

"If I had to bet, I would bet that 10 year note prices will continue to increase, rates will decrease, for the foreseeable future."

The question remains; did I eat my own dog food? Did I take my recommendation/opinion and act upon it? Yes. Returning back to the original 10 year notes post, you will see that price had not retraced into a "C zone" (the turquoise boxes in the second chart of that post which is a 38.2-61.8% retrace of the AB leg).  As I was not sure whether the inverse head and shoulders pattern on the daily chart had put in the B point (a.k.a. right neckline). My only trade option was to wait for the right shoulder/C zone to be hit. And that's what I did.

Looking at the following weekly chart, you will see that price did retrace into the C zone, this week.

Click to enlarge

I don't trade directly from weekly/daily charts, but they serve to find the trade locations of interest. The next step is to watch price on a trading time frame chart and wait for a reversal entry that would initiate the long trade. A trade that may move price into the destination area of this pattern which is the 161.8-224% extension of the XY leg to 129'04.5 - 130'31.0.

The following chart is the December 10 year note on a 610 tick time frame, with the 8, 50, and 200MA, as well as a volume histogram below price.
 

Click to enlarge

The 38.2% retrace that would set the minimum potential right shoulder was 125'26.5 and is drawn on this chart. The swing low was put in yesterday, during extended trading hours and represents point X, during the early morning a swing hi (across 50 & 200MA) was set, then price retraced 88.7% of that swing. Perfect. Here is a reversal pattern, that would take the trade into the direction of the CD leg (long). While the elapsed time to create the XY leg was about 4.5 hours, the retrace took only 2 hours (much faster than XY), and the swing low that created the A point corresponded with a volume spike. Moving averages were in proper location, so a high probability trade set up was available.

The following Tradestation positions window, shows I am long 3 contracts at an average price of 125.83 (125'26.5).

My trade intention is to hold two contracts to the 129 area (minimum target for the pattern). CD legs are generally sloppy, but I have no desire to turn this trade into a loser. My stop is currently break even and will be adjusted upwards with price. Tomorrow, Federal Reserve Chairperson-Designate Janet Yellen testifies on monetary policy before the Senate Banking Committee in Washington DC. This may generate some chaos in Treasury prices. Should ten year notes continue to increase in price, they may not get to the target price before the contract expires. If it does not then I will close this position during the rollover period.

As always, trade what you see.