If you aren’t paying attention to U.S. treasury bonds, you are ignoring a subtle, yet vital, component of how the U.S. economy works. Bond rates are a key component of how the U.S. government monitors and cares for its own health, and by watching what treasuries are doing, you can get an idea of what to expect from other segments of the economy. This is not exactly a precise science, but it is a good litmus test of what you should be expecting from your particular area of focus.
Bonds are an integral part of how the government functions. There’s always a lot of concern about the national deficit, but as long as treasury bonds are managed correctly, there’s very little threat of a default by the U.S. government. For all of the talk about China and other blossoming economies taking over the United States and its property, the only way that this can really happen is if bonds begin to fail. Therefore, one easy thing to look for is panic within the bond market. When this occurs–and now and then, it does–the stock market tends to get hit hard, pushing stock prices down quickly. Consider the Salomon Brothers debacle back in 1991 when a single trader for the firm submitted several false bids. This alone was enough to create a big disturbance, and it took months for this problem to eventually correct itself.
Watching treasury bonds is not exactly an exciting business. Bonds do not move nearly as quickly as stocks, and they do not have the same level of lucrativity attached to them. They are used primarily as a safety net by most funds and big name investors, and this can make them seem completely obsolete to the average short term trader.
You don’t need to spend a ton of time studying what treasuries are doing, but you should be aware of what is happening in this market so that you can formulate your trades with the proper context. Bonds have a reach into the stock market, having a profound impact on both individual companies and indices, as well as the Forex market. By extension, they even impact what happens with certain commodities. The impact can be delayed at times, but thanks to the immediacy of the internet, this delay is far shorter in nature than it used to be. Binary options traders need to be aware of this, and ensure that they are timing their trades correctly so that they are not seeing expiries come and go before the pull comes into effect. However, for longer term trades, you can more effectively predict if and when price reversals are set to occur, and this is a valuable part of your risk management strategy.
The more experience you have in this part of the economy, the more accurate your predictions will become. It can seem completely foreign at first, but this is normal. You can go back and look through the historical records and see how bond rate movement affects your sector(s) of choice, but the best way to learn here is simply to keep observing what happens. It doesn’t require a lot of time on a daily basis, but the little energy that you do spend now on this will have bigger payouts later on in your trading career. And once you learn how to incorporate this fundamental strategy within your larger and more exact technical analysis process, you will eventually begin to see better results when it comes to your correct trade rate. In the end, this could earn you tens of thousands of extra dollars.