The name’s Bond, Treasury Bond. Sorry, just couldn’t resist that one.

In the recent refresh of the tick-by-tick market study, I mentioned I became curious about the current structure of the 30-Year US Treasury Bond futures contract (symbol: ZB) and a little more digging may be in order. Well, some excavating has been done and what you’ll see in this here white hot spotlight is a bit of the interesting aggregate culled from that mound of investigative fill.

Like the spotlight on NYMEX Light Sweet Crude Oil futures contract (symbol: CL), this one is part of the Market Study Bootcamp series. Just as before, we’re going to try to get to know it a little better in order to see what makes ZB, er, tick. Get it? Tick? Uh, yeah.

Just in case you’re not familiar already, a précis on Part 2 of the bootcamp series may be in order. In that post I posed 4 essential questions which we’re answering in an effort to understand the potential intraday, er, opportunity yield of the ZB. Pun intended.

Here are our questions once again:

  • How frequently does it swing?
  • What does the distribution of swing magnitudes look like?
  • How long do the swings take?
  • When in the session are the swings occurring?

And here we go…


We’re going to examine the daily swings of ZB using the data export features of the Pro Edition of the Acme ZigZag study. The study setup is pretty simple:

  • Load one year’s worth of ETH bars using the CBOT Interest Rate ETH session. That’s the full 24 session.
  • Apply the Acme Zig Zag to the chart with the data export feature turned on.
  • Fire up Excel and examine the results.

If you Pro-level members are interested in playing along at home, here are the specifics:

  • Chart:
    • ZB ##-## (a back-adjusted continuous contract, but you can use the dated contracts too)
    • 5 minute bars
    • 365 days loaded
  • Indicator settings:
    • Swings – Magnitude parameter set to 0.25. This value which will capture most swings of significance while not littering the data with the tiny oscillations. This is important, and we’ll see why a bit later.
    • Swings – Use Highs and Lows parameter set to true. This will capture the full range of all the swings.
    • Swings – Measurement Type parameter set to Points for the sake of mathematical simplicity.

Using these settings here’s what the chart will look like, more or less:

And Now…. The Data


Symbol: ZB

  • Swings in sample: 1225†
  • Date Range: September 23, 2013 – September 24, 2014



NOTE: the graphs below are wide. Really wide. To see the whole horizontal enchilada stretch your browser as wide as possible before clicking on them.


Let’s start with the first question first. How often does ZB swing? Below we have the distribution of swings in our sample:

Swings Per Day - ZB

Swings Per Day – ZB

As in the other spotlights, what the x-axis shows us is the number of swings per day and the y-axis shows us the count of days that number of swings occurred. First, as you can see, the ZB is a deliberate instrument with confidently few swings each day. Specifically, most of the time, there are a scant 5 or fewer swings per day. If you’re after lots of volatility, a glance at the above histogram may have you asking yourself “Self, is this really an instrument I should be trading?” “Well, yes, possibly,” you may answer. Then you realize you’re talking to yourself. Yeah, that’s not good. But at least it’s not in the 3rd person because that would be weird. But I digress…

Where were we? Oh, right. As I’ve said before you need to know your instrument. In the name of sustainability, you also need to make sure your instrument is a good fit for your overall disposition and life circumstances. For example, are you into skydiving or paragliding? Have you ever had the uncontrollable urge to jump off a skyscraper or soaring cliff wearing nothing but a squirrel suit and (maybe) a helmet? Does the list of hobbies you discuss at dinner parties include racing cars or motorcycles? If you answered yes to one or more of these questions then you are, sorry to say, an adrenaline junkie and the ZB is might not be for you.

The ZB, in my view, is a classic thinking person’s instrument. Careful, methodical, contemplative, always aware of the big picture with heaps of patience, confidence and self-control. But then, given the long-term nature of the underlying bond, this should be no surprise. When you have 30 years to mature, there’s no reason to rush pretty much anything I suppose.

This includes ZB’s order flow. If you have not really ever watched the ZB tick away, you should. It has a staccato, irregular rhythm which is genuinely strange if you’re used to more steady instruments. Even during the most liquid time of day, the  RTH session, pulses of orders cross the tape punctuated by seconds or even minutes without a trade. The character of its order flow is just, well, pretty unique among the liquid contracts.

So if you’re the type of trader who would prefer to trades that last hours or days instead of seconds or minutes, with many chances to inflect and reflect along the way, or you’re looking to expand your playbook to include an instrument with a longer natural timeframe, the ZB may be worth a serious look. The keys to success? Many to be sure, but the vigilance of bow hunter in a tree stand are chief among them. You need to be out there dusk and dawn everyday, rain or shine, undaunted by heights, rain or cold ready to take your shot. The numbers show there’s likely to be only a handful of good opportunities per day or even per week.


But man cannot trade by swing frequency alone. We must, of course, know more. So on to our 2nd Big Question – the swing magnitude distribution?

Swing Magnitude - ZB

Swing Magnitude – ZB

So, on the x-axis we have the number of points of all swings in our sample and on the y-axis we have the number of swings of that magnitude/size. What’s most noteworthy is the almost-linear distribution of swings, which is characteristic of all the liquid futures instruments. Good participation (an overall balance of buyers and sellers) across a range of prices is, essentially, the definition of liquid. And we have that here. Check.

And generally, most of the time, liquid instruments trade in a pretty orderly fashion. So one plausible way of interpreting this power law-ish distribution’s that, though its volatility is pulsed and slow to unfold it’s an epitome of an orderly market. For an orderly market subject to real-time price discovery, I would expect to see a graph dominated by frequent small swings with a steadily-decreasing frequency of big swings. I see the little swings as evidence of subtle and ethereal shifts in the supply-demand balance which should be the norm and not the exception. In a market driven by force majeure (or shenanigans as in pink sheet stocks) the graph would be dominated by large swings designed to enrich or devastate, depending on which side of the trade you are on. Really nothing like that going on here. Way out on the right we have a few fast and furious repricing events, but that’s to be expected.

OK, so that’s good. Now what?

It gets pretty interesting when you start thinking of this kind of graph as a tool for evaluating the quality (plausibility?) of planned exit targets. The most frequent swings were 9 and 10 ticks, respectively. So this is a pretty good indication of what a “base hit” might look like. So if your planned target is 18 0r 20 ticks away from a “perfect” entry, the numbers say you’re roughly half as likely to get there in one swing. Given this, maybe an even better plan would be to reevaluate near 9-10 ticks and consider whether price is likely to continue in your direction and  about how long it should take. Or take some off the table if you’re in the green. Conversely, this distribution also tells you something about the kind of stops you’ll need. Unless your entries are picture perfect, you’re going to need to give trades a bit of room to breathe. So understanding these kinds of magnitude distributions can carry us a long way toward successfully managing your risk before and during a trade. Knowing when to get in is only half the task.

Yet another valuable use of magnitude graphs is to compare it with your actual results if you’re already trading the ZB. Magnitude graphs show you one concrete universe of possible profits if you analyzed, planned and executed perfectly.  You could overlay your actual results on top of this kind of histogram and gauge your real performance. It can be eye-opening to quantify whether you’re capturing all you can or how much your leaving the table. Make no mistake, the need for performance improvement is never-ending in trading. After all, if you’re in the ZB you’re the bond pit moshing with some of the best and most serious punters on the planet.


Next up is question number 3. How long do the swings take?

Swing Duration - ZB

Swing Duration – ZB

Once again the x-axis we have the duration in minutes of the swings in the sample, and on the y-axis we have the frequency of swings of each duration on the y-axis. The pattern is pretty clear here. Using the trusty principle of Pareto, around 80% of our swings last between 10 minutes and 2 hours with a healthy number stretching out to 5 hours. Not exactly a scalper’s paradise, this instrument. It’s really best suited for the tortoise over of the hare, the marathoner over the sprinter. But then that should come as no shock given what we’ve seen so far.


Which brings us to our 4th and final Big Question – when’s this action taking place?

Swing Time of Day – ZB

Here the x-axis has times of day that a swing started or ended, and on the y-axis we have the frequency of swings that commenced or concluded at that time (keep in mind times are Pacific, UTC -8:00). Remember, for our purposes, we don’t really care whether it was the beginning or end of a swing. We’re only concerned with understanding when this instrument presents turning points.

What I find fairly startling are those long poles right there around 5:30AM and again at 11:00AM. Those, mathematically, are your most frequent opportunity windows. So if you trade the ZB and you’re in my time zone (or further west), you’re getting up mighty, mighty early. Or you’re not going to bed at all at night. For those of us left coasters and those not counted among the nocturnal, trading the ZB while maintaining any kind of normal social or family life is a really rocky row to hoe. Probably something to consider when evaluating how well any instrument fits your circumstances and disposition. The times of day you need to be in a state of readiness in order to capitalize on the available opportunities may be just not sustainable long term. And by “ready,” I mean head off the keyboard, eyes wide open and mouth mostly drool free. For me at least, this would be much harder than it sounds for more than a few days.

So now that you and ZB have been properly introduced, what do you think? Smitten? Want to keep the conversation going and see where it leads?  Some more questions you might ask, in the bootcamp spirit, concern quantifying correlations between swings by time of day, size and duration – i.e. opportunities. I’ll leave you now, gentle readers, to forge the next phase of the relationship on your own.

And until the next instrument spotlight… trade ’em well.

† Note: Unlike with some of the other spotlight studies, I left in all the samples even though some of them are several thousand minutes long. In these cases nearly all were swings which bridged weekends and holidays. Even though extreme, these long swings reflect of the general character of the instrument and didn’t materially affect the visualizations.