The three charts below show that the BUND (10 Year German Bond) has confirmed a double top pattern breaking the last low, the BOBL (5 Year German Bond) is close to confirm a head and shoulders pattern by breaking its neckline and finally the SCHATZ (2 Year German Bond) is still near the top and far from the breaking area.

This is a logical situation, because the remaining life of each bond acts as a kind of leverage that pushes it to produce stronger percentage movements. The first one breaking must always be the BUND, followed by the BOBL and finally the two years SCHATZ.

In this situation we can consider several strategies:

The most conservative one would expect a return to the breaking area of the BUND, close to 122 points and then sell futures.  This option has an advantage and a disadvantage:

• The advantage is that the bearish trend is already confirmed, before entering the market.
• The disadvantage is that the stop loss order must be placed at 123.51, which is far away from the entry.

Another possibility is selling BOBL at 115.90, which is likely to return to that area, with a closer stop loss at 116.31. This sale before a confirmed downtrend has a higher risk probability of compliance, but has less risk of loss percentage. Logically, we internally expect that the BOBL slower but finally will follow the steps of its big brother the BUND.

And finally, the SCHATZ can be sold at any pullback close to the top area, with the maximum stop loss set in 0.10 to 0.15 points.

Each trader must make his choice comparing the probability, risk and reward offered by each German government bond futures.

BUND (10 Year German Bond)

 

BOBL (5 Year German Bond)

SCHATZ (2 Year German Bond)