The Taylor Trading Technique normally uses the previous session high and / or low as reference prices- levels to gauge market action and make trade entries and exits. However there are times when previous market highs and lows can give us a better picture of market action, helping us make better trading decisions.
In this morning’s Swing Trader’s Insight watch list I pointed out previous highs in the EMini S&P and NASDAQ as reference prices for a potential Taylor trading Technique Sell Short day. I didn’t mention the Russell however it had the same setup and makes for a better chart example; let’s take a look at this morning’s action.
For the September EMini Russell futures the analogous price was the 31 August high of 1165.50; this was the highest high since the big August selloff. The previous two sessions saw an advance to test this high; how the market traded in relation to this level could give us a trade setup.
In last night’s Swing Trader’s Insight I labeled the EMini Russell futures as being on the Sell Short day of the Taylor Trading Technique cycle: Friday afternoon’s rally was the Buy day, we had Sell day follow through on Tuesday, giving the Sell Short day for Wednesday. ROC had risen to sell signal levels, corroborating the bearish view.
Normally we would use the previous session high as the reference price for a Sell Short day; we look for a failed rally above the previous day high to be our trigger for the short sale. However in this case the market was testing a prominent recent high; how the market acted around this level would give us an idea as to its likely direction.
Overnight the market rallied above the 31 August high, following through on Tuesday’s rally. This rally was our first heads up for a potential short sale, if the rally failed. I generally look to trade the stock indices during regular trading hours (8:30 AM CT to 3:15 PM) but the overnight rally was still a signal to pay attention.
At the 8:30 open the Russell rallied, making a day session high of 1169.80. The rally failed here (against the 8 AM high) and the market sold off. The move below 1165.50 (31 August high) was our trigger for our short sale, with the initial stop loss going above the day session high.
The selloff accelerated in the morning after it took out the Tuesday high of 1161.60, dropping to a session low of 1153.10 by 10 AM. Note that Tuesday’s high served as resistance on the initial selloff and then again around 10:30 AM.
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