How to trade seasonal patterns in Bonds, today: The German Bund Future (FGBL)

  • master
  • 02.10.2019
  • Comments Off on How to trade seasonal patterns in Bonds, today: The German Bund Future (FGBL)

After the ECB rate decision on September 12, the German Bund Future dropped with German yields seemed to have found a short-term bottom.

While this development may come as a surprise to some, if we look closely at the details of the ECB package one might get an idea why German bunds don’t keep on rising. But we might at least see a short-term corrective move.

The QE-ternity planned for a pace of €20bn per month before it was announced that the ECB was to raise the issuer limit rule. This means, for example, in Germany, that there is ‘only’ headroom to buy a further €30-40bn in German bonds before the 33% limit is reached.

With that in mind, an upcoming seasonal bearish pattern in FGBL comes into play.

It developed over the last 21 years during the period between October 2-11, and creates a chance for us to strategize a method to trade the German Bund Future.

Seasonal Pattern in FGBL

The key parameter of this seasonal bearish pattern is as follows: between October 2 and 11, FGBL saw an average drop of 117 ticks for 17 of the past 21 years.

In the remaining four years, it gained on average only 46 ticks, while a maximum loss and maximum drawdown of 110 ticks.

Trade the Seasonal Pattern: #Bund_Z9

And now the key question: how could we trade this?

Here’s the plan:

  1. After identifying the profitable seasonal window, buy #Bund_Z9 on the closing price of the starting date on October 2 (21:59 CET).
  2. Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.

    1. If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
    2. If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
  3. Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
  4. If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on October 11.

    Looking at current market data, since the ATR(14) in #Bund_Z9 on a daily time frame is currently trading around 90 ticks and the maximum loss of the window being 110 ticks, our worst-case stop will be placed based on a maximum loss 110 ticks away from our entry price.

    Meanwhile, the average gain of the seasonal pattern is 117 ticks within this period. So, after entering the trade on the closing price of October 2, we would subtract 117 ticks to get our take profit level.

Source: Admiral Markets MT5 with MT5-SE Add-on #Bund_U9 CFD Daily chart (between June 13, 2018, to September 30, 2019). Accessed: September 30, 2019, at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the FGBL increased by 12.3%, in 2015, it increased by 1.3%, in 2016, it increased by 3.6%, in 2017, it decreased by 1.5%, in 2018, it increased by 1.1%, meaning that after five years, it was up by 17.9%.

Check out Admiral Markets’ most competitive conditions on #Bund and start trading from as low as 3 ticks only. To test Admiral Markets GOLD offering in combination with the described strategy above register for a free demo account today and experience the live market risk free!

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