In last night’s edition of Swing Trader’s Insight I labeled today a (Taylor Trading Technique) Buy day for the EMini S&P futures. The market followed the script this morning, giving us a good trade opportunity.
Last night’s full comment was “cover breakout sales, (TTT) Buy day”. Monday was a good example of a downside breakout day as it opened near the top of the range and sold off over the course of the session, finally closing near the bottom of the daily range.
A move such as the one seen Monday often creates an “excess low”, where a market is pushed down to a level that is “too cheap”. The Taylor Trading Technique seeks to identify markets that overshoot “value” and make “excess” highs and lows.
When these setups occur, many traders make emotional decisions as greed or fear gets them to buy at the top or sell at the bottom. The action of these emotional traders is often the point at which the market reverses as it runs out of sellers at a bottom or buyers at a top. With the TTT we then look to buy when a market turns up or short when it turns down.
We identify when to buy or sell by watching a market’s behavior around a reference price. For a TTT Buy day our standard reference price is the previous session low. Specifically, a move below the previous session low gives us a “heads up” to look for the market to put in a bottom and begin to rally. Our actual buy signal comes when the market rallies back above the previous day low.
For the December EMini S&P Futures, today’s reference price was Monday’s low of 1868.75. Last night saw a few pushes below the reference price, followed by a push up to a session high of 1886.00 early in the morning. (I generally restrict my trading to the stock market hours of 8:30 AM on, but I often look to overnight highs and lows for additional reference prices or objectives.)
Around 7:30 AM the market began to sell off into the open. This decline accelerated after 8:30, dropping below Monday’s low about 10 minutes into the session. This gave us our heads up to begin to look for a bottom and subsequent upside reversal.
We got this reversal in another 10 minutes, making a day session low of 1865.75 before beginning to rally. This move back above our reference price was our trigger to go long. The initial stop loss could go either below the 1865.75 day session low or the 1861.00 overnight low. The logic of a TTT buy is that we buy when the market is trending higher and we stay long as long as the market trends higher. If it falls back and takes out the low, it means the uptrend has ended.
Today we saw the morning rally continue, reaching the 1886.00 overnight high by 9:25. This could be our first reference price / objective for our trade, as the market’s (in)ability to hold a rally above the high would tell us whether the rally was likely to continue or terminate.
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Essential Guide for Futures Swing Trading
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