A large percentage of traders tend to do the wrong thing at the wrong time- emotion gets them to buy at the highs and sell at the lows. The Taylor Trading Technique seeks to anticipate and profit from situations where emotional trading is likely to occur.
The Taylor Trading Technique is often productive around data / report releases as they often result in volatile and emotional markets. One of my favorite report releases to trade is the weekly EIA petroleum inventory report, which is usually released at 9:30 AM CT on Wednesdays.
By the Taylor Trading Technique, today was a Sell Short day for crude oil futures (as I wrote in last night’s Swing trader’s Insight). There was a breakout setup for Tuesday, which resulted in Tuesday’s rally and high range close. A breakout day in one direction often results in an emotional extreme in one direction, which then results in a move in the opposite direction in the following session.
Thus Tuesday’s breakout rally meant we would anticipate a Taylor Trading Technique (TTT) Sell Short day for Wednesday. On a Sell Short day we look for a rally to the previous session high. This rally results in buying to cover by weak shorts as well as small traders establishing new longs, looking for another rally day.
The TTT tells us to look for an early rally to fail, often against the previous day high. We look to go short as this rally fails and the market begins to sell off. In this case, we would look for a rally in August crude oil futures to fail against the Tuesday high of 61.49.
The market rallied overnight, reaching a session high of 61.57. If you were trading last night, this move would have been one to sell, and it subsequently fell back, making a session low of 60.60 shortly after 8 AM.
The recent strength then reasserted itself and the market rallied back up to 61.50 (one tick above Tuesday’s high) by 9:15. This “high violation” (as Taylor termed it) was a signal for another short if you wanted to take a trade before the EIA report. I prefer to pass; markets can be volatile and unpredictable around a report; I would rather wait for an opportunity after the release.
The EIA report was bullish, showing a larger than expected drop in crude oil stocks last week. This did lead to another rally, which topped out at 61.50, matching the 9:15 AM high and below the 61.57 session high.
This move was a classic example of “buy the rumor, sell the fact” as the market’s inability to clear the recent highs led to selling, which gained momentum as the market declined. As I’m writing, August crude is testing the $60.00 level, having fallen $1.50 off the session high.
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Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
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