When a market has a session with a strong directional move higher or lower, the following session usually has a move in the opposite direction (a Taylor Trading Technique cycle day) otherwise residual momentum will continue the breakout move on the second day. Either pattern can be a trade opportunity.
In last night’s Swing Trader’s Insight the comment for the eMini S&P futures was “cover breakout sales, Taylor Trading Technique Buy day”. The Taylor Trading Technique is not a sure thing for the session after a breakout move (really, nothing is a sure thing in trading); the following day’s action depends on whether or not the breakout move expends it momentum in the first session.
For a Taylor Trading Buy day we anticipate an upside reversal however we only go long when we have evidence that the market is heading higher. After last night’s action it was evident that the downside momentum was still in control; we would look for signals that the downside move was continuing or potentially the upside reversal of a TTT Buy day.
I was looking at the short side because overnight the market made a solid move below the recent low, the 2062.00 low from Monday. It was below this level; if it served as resistance on a recovery rally then a resumption of the selloff was likely so we should look for a short sale opportunity.
We didn’t have anything to do at the 8:30 AM open and I wasn’t sure we’d get a trade opportunity today. The 8:30 open was around 2058 and it spent roughly the first hour in a trading range. Just before 10 AM it moved out of the top end of that range, moving above 2062.00 around 10 AM.
At this point we would watch to see if it was able to rally above 2062. A sustained rally above there would suggest we could start to look for signal to go long, while a move back below there would suggest the bears were still in charge, and give us a short sale opportunity.
By about 10:10 the rally had failed and we could look to go short. We would place the initial stop loss above the recent swing high (2063.50); if the market rallied back above this level it would indicate the selloff had most likely ended.
The down move gained steam over the morning. The day session low (2053.25) initially held up the market around 10:45; when it was broken around 15 minutes later a move to the session low of 2049.00 quickly followed.
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