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According to the Wikipedia article on technical analysis:

Technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.

In most markets, past market data for bonds is readily available. In the USA, bond price and volume information collected by FINRA's TRACE facility is widely distributed to data vendors and is viewable by retail investors on FINRA's Market Data Center website. Consider the 10+ year price chart for PepsiCo Inc 5.500% 2040-01-15 callable bond (CUSIP: 713448BP2):

PepsiCo bond price chart retrieved from FINRA's Market Data Center on 2020-09-11

The bond's price chart allows the use of technical analysis by overlaying trend lines, moving averages, support and resistance lines on the chart. And yet I only hear about the use of technical analysis for stocks, futures, commodities and currencies (forex). There aren't many articles or books about technical analysis for bonds.

Why isn't technical analysis commonly used for bonds, even though all the data required for technical analysis is available? Is it because technical analysis doesn't "work" for bonds as well as it does for other kinds of securities? Is there something fundamentally different about bonds that makes technical analysis ineffective?

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  • To get at a full answer to where your question is coming from, it would help to understand what you mean by 'not commonly used'. Do you have evidence for this? Are there specific data points you are comparing? Without getting into whether TA is effective at all, consider that a significant factor in the value of a bond is just the market interest rate, which is effectively set by governing bodies, so that element of bond pricing is not subject to the whims of the market that TA portends to interpret. I have no idea if this truly does limit the real-world use of TA on bonds, however. Sep 11, 2020 at 13:54
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    @Grade'Eh'Bacon I am under the impression that technical analysis is not commonly used for bonds because: (1) technical analysis articles around the internet always use stocks, futures, commodity and currency examples only; (2) I tried to look for books about technical analysis for bonds, but I had difficulty in finding any; (3) many of my stock market books include some discussion about technical analysis, but none of my bond books mention anything about technical analysis.
    – Flux
    Sep 11, 2020 at 14:50
  • Technical analysis looks at market data, seeking to identify patterns and trends. It can be used on any type of data. Whether that data is conducive to technical analysis is a different story. May 7 at 13:03

2 Answers 2

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And yet I only hear about the use of technical analysis for stocks, futures, commodities and currencies (forex).

Perhaps you don't know any bond traders who use technical analysis, hence you're not hearing about it?

There aren't many articles or books about technical analysis for bonds.

Technical analysis is about analyzing price and volume data. Therefore, it's applicable to any security for the analyst who is a believer.

Why isn't technical analysis commonly used for bonds, even though all the data required for technical analysis is available?

A quick google turned up multiple sites that provide technical analysis of bonds. The first one one the list provided a fair number of technical indicator values for the 10 year bond today:

Pivot Points:

  • Classic

  • Fibonacci

  • Camarilla

  • Woodie's

  • DeMark's

Technical Indicators:

  • RSI(14)

  • STOCH(9,6)

  • STOCHRSI(14)

  • MACD(12,26)

  • ADX(14)

  • Williams %R

  • CCI(14)

  • ATR(14)

  • Highs/Lows(14)

  • Ultimate Oscillator

  • ROC

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Technical analysis with bonds can be difficult with bonds because of the inverse relationship between price and yield. As an example, an investor might be quite happy with the price of a bond staying exactly where it is when they are collecting a 7.5 monthly yield. In fact, the price can still go down a bit (and it probably will), and the yield may still compensate. This would really not be able to be capitalized in a trade. Many investors are also willing to hold a bond to maturity, at which time the bond dissolves and cash returned to investors. This is also difficult to reflect in the price since this is an event which essentially happens one day in the distant future.

The call option in your example also affects the price, however that can be complex since a bond can be called over a long period of time, and that is difficult to reflect in the price as well.

All these things are somewhat reflected in the price, and along with interest rates and fed policy can create volatility in longer term bonds, which CAN create short term trading opportunities. However bonds in the long run are considered safe investment and things tend to revert to the mean.

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  • You've explained a lot of things that have nothing to do with technical analysis: The inverse relationship between price and yield, an investor's willingness to hold a bond to maturity, the effect of an imbedded call option, the Fed's policy, etc. TA examines price movement not the reasons for price movement or the lack thereof. May 7 at 13:08
  • Yes. The question was "Why ISN'T technical analysis used for bonds", and I gave an answer that explained a lot of things that have nothing to do with technical analysis. So I answered the OP's question. And what I said DOES affect the bonds price. May 8 at 0:31
  • 'I gave an answer that explained a lot of things that have nothing to do with technical analysis.' And that's why your answer does not answer the question. And FWIW, technical analysis IS used for bonds, so you missed the boat on two accounts. May 8 at 19:30
  • well great.. thanks for your Opinion May 9 at 0:58

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