ICT Mentorship Core Content - Month 05 - Using 10 Year Notes In HTF Analysis

Summary

In this lesson on higher time frame analysis, we examine the seasonal tendencies of 10-year Treasury notes and their impact on the Dollar index. The 10-year notes exhibit a bearish trend in the first half of the year and bullish in the second half, while the Dollar index inversely mirrors these movements. By understanding these patterns, traders can identify when the market is in consolidation or trending, helping to make informed decisions. The lesson also highlights the effects of external events, like elections, on Treasury and Dollar trends, with practical examples of past market behaviors to guide future strategies.

Takeaways

• 😀 Treasury note prices and yields have an inverse relationship: when prices rise, yields fall, and vice versa.
• 😀 The seasonal tendency of the 10-year treasury note is generally bullish in the second half of the year and bearish in the first half.
• 😀 The dollar index typically rallies when treasury yields increase and declines when treasury yields fall.
• 😀 The 10-year treasury note seasonal pattern shows a high in January-February, a low in June-July, and another high in December.
• 😀 When the 10-year treasury notes are rallying, it indicates a decrease in interest rates, which is bearish for the dollar index.
• 😀 A strong correlation exists between treasury notes and the dollar index when they move in the same direction, leading to a consolidation phase in the markets.
• 😀 When the treasury notes and the dollar index move in opposite directions, it signals a trending market, which is favorable for long-term positions.
• 😀 In periods of consolidation, currency pairs like the British Pound or Euro typically experience range-bound trading.
• 😀 External events, such as elections, can disrupt the typical seasonal patterns of treasury notes and the dollar index, as seen in the 2016 U.S. presidential election.
• 😀 Traders should focus on short-term trades during consolidation phases and consider long-term positions when both treasury notes and the dollar index are trending.

Q & A

What is the primary focus of this lesson?

The lesson focuses on using 10-year Treasury yields in higher time frame analysis, particularly understanding the seasonal tendencies of 10-year Treasury notes and their relationship with the dollar index.

What is the seasonal tendency for 10-year Treasury notes as discussed in the script?

The seasonal tendency for 10-year Treasury notes generally shows a high forming in January-February, followed by a decline until June, and then a rally through the rest of the year, reaching highs in December.

How does the seasonal tendency of 10-year Treasury notes impact their yield?

As the prices of 10-year Treasury notes rise, the yields drop due to the inverse relationship between price and yield. When the Treasury notes rally, yields decrease, and when prices decline, yields increase.

What is the expected behavior of the dollar index during a 10-year Treasury note rally?

During a rally in 10-year Treasury notes, the dollar index typically declines because lower Treasury yields reduce the appeal of dollar-based assets. This occurs due to the inverse relationship between the two markets.

How do the seasonal tendencies of the dollar index compare to those of the 10-year Treasury notes?

The seasonal tendency of the dollar index typically shows a rally in January-February, followed by a decline in the second half of the year, with lows occurring in late October or early November. This behavior contrasts with the 10-year Treasury notes, which have a bearish tone in the first half of the year and bullish tone in the second half.

What is the significance of the relationship between the 10-year Treasury notes and the dollar index?

The relationship is crucial because when both markets move in the same direction, it suggests a consolidation phase. Conversely, when their movements are opposite, it may indicate a trending market. Understanding this relationship helps traders anticipate market behavior and identify trading opportunities.

What does it mean when both the 10-year Treasury notes and the dollar index are in a consolidation phase?

When both the 10-year Treasury notes and the dollar index are consolidating, it indicates indecisiveness in the market, often leading to range-bound trading. This scenario is typically seen when the two markets are moving in the same direction, suggesting a lack of strong directional trends.

How did the 2016 election impact the 10-year Treasury notes and the dollar index?

The 2016 election results led to a sell-off in the 10-year Treasury notes, which caused an increase in interest rates. This, in turn, made the dollar more attractive to yield-seeking investors, leading to a bullish movement in the dollar index.

What strategy is recommended when both the 10-year Treasury notes and the dollar index are moving in a trending environment?

When both markets are trending in the same direction, it suggests a strong long-term trend, and traders should look for long-term position trades. This is the ideal condition for large funds to enter the market and take advantage of directional moves.

What should traders focus on when the 10-year Treasury notes and dollar index are not showing seasonal tendencies?

When the seasonal tendencies of the 10-year Treasury notes and dollar index are not aligned, traders should focus on short-term moves and day trading. This is often a time when the markets are range-bound, and long-term trends are less likely to develop.