Prices move up and down in response to fundamental and technical data. Fundamental or economic statistics are the driving force for price discovery. Bullish news or an indication of a lack of supply forces a rise in price, and weak demand pushes price lower.

A technical view takes a backseat to basic economic principles of supply and demand. But when new data are unavailable, technical information is often used to take a bullish or bearish position. Fundamental data take precedence over historic patterns. But when essential news is not available, observation or a technical view can help navigate a difficult trading environment.

Professional traders recognize crucial fundamental events and design strategy accordingly. Recently the Fed took on a dovish or more accommodative stance on interest rate policy. And the latest employment report revealed a robust job market. The conflict between these two events demarcated an upper and lower extreme in treasury futures. When extremes are defined, a contrarian style of trading tends to work best. The interest rate markets reacted to the fundamentals, and the sharp moves up and down defined technical levels.

The macrograph below shows 10-year note futures using bell curves or profiles. These structures show not only daily highs and lows, but they also reveal high volume or fair prices. The fair price is the one that sticks out furthest to the right. On the bottom left of the chart it shows where the market was when Fed policy changed, and a rally ensued. Two sessions later notice where the 10y was when the bearish employment report was released. When critical levels were retested over the next two weeks the market reversed or found what is known as support and resistance.

 

 

 

 

 

 

 

 

 

 

 

Professional traders are aware of pivotal moments and prices. Returning to such areas frequently presents an opportunity to buy near the low of a move and sell near the high one.

John Seguin, Market Taker Mentoring