ZoneTraderPro Daytrading Theory and Patterns on the 10 Year Bond

ZoneTraderPro Daytrading Theory

ZoneTraderPro just doesn’t work on the ES chart.  It can also be used on bonds and currency futures to filter the ES trade.  The TICK Divergence pattern is a consistent winning pattern as seen in this trade from yesterday.  The TICK Divergence is an even better pattern when combined with an Exhaustion pattern because the Exhaustion trade is normally marking a top or a bottom.

When the trade does not work

Here is a TICK divergence pattern from this morning that did not work and using ZoneTraderPro on a ZN and/or the TLT chart shows the reason why.

ES and ZN Chart Together

This morning we saw a TICK Divergence / Exhaustion trading pattern that only worked for 5 ticks before it reversed.  Then the market traded in a second TICK Divergence pattern that was a loss.  This makes me ask the question that I have always asked when trading.  I know why trades win.  But a seemingly perfect setup failed. Was there any reason (other than a news event) that the trade failed?  The answer is easily found in the ZN chart.

The ZN chart went from blue countertrend resistance through the opposite blue counter trend support zone by 4 ticks.  The ZoneTraderPro theory says that this is a trend reversal when the market trades from a blue zone to a blue zone.  The next part of the theory says that the market should retrace to the pink minor resistance zone before resuming the trend.  This is where theory becomes strategy.  When the TICK Divergence trade is signaled on the ES, the ZN had traded through countertrend support.  The ZN is in a strong bearish trend (without retracement) so the ES will respond in kind with a strong bullish trend.  As the ZN retraces back to exactly the minor resistance zone, the 1st TICK Divergence trade works for 5 ticks.  With the ZN in a strong bearish trend, why take the ES long trade?

The ZN market then sells off again into the 10:08 AM TICK Divergence loss.  With the ZN in a strong bearish pattern and responding exactly as the ZoneTraderPro theory suggests, taking either of these two trades was a high risk.

Next the ZN makes a triple bottom, supporting the successful short ES trade at 10:40.  Nothing has changed with the ZN 8 minutes later when the TICK Divergence long trade fails as the ZN has traded off the low and its’ price is rising.

ZoneTraderPro Theory and the TLT

The ZoneTraderPro theory also applies to the TLT, which is the iShares 20 year treasury bond.  This market was in a typical bearish trend trade when the first TICK Divergence trade lost.  At the point where the ES trade was signaled, since the price had traded through intermediate support, the theory says price should keep falling to blue counter trend support, which is exactly what it did.

Twenty minutes later price made a bullish move from blue support to blue resistance and then retraced to minor support.  This is the same theory that was just demonstrated on the ZN.  With the TLT Bullish, the ES short trade works and the TICK Divergence long fails.

The ZoneTraderPro theory is not hard to learn because there are three basic patterns.  The first is the trend trade pattern (1st trade on the TLT).  The next theory describes a strong market and the third describes reversing markets, which is what you see demonstrated on the ZN and TLT charts.