Today the eMini S&P futures were on the Sell Short day of the Taylor Trading Technique cycle; here’s how we looked at it.
Today was a Taylor Trading Technique Sell Short day for the eMini S&P futures. Normally we would watch the previous day high (in this case, 2110.25 basis ESZ) as the reference price; looking for a failed rally above the reference price to be our short entry signal.
When I wrote this morning’s Swing Trader’s Insight watch list I also listed the overnight high (at the time) of 2108.25 as a reference price in case the market was unable to reach Tuesday’s high. On a Sell Short day we’re looking for a failed rally against an old high and I often look at overnight highs and lows as additional reference prices.
This setup would have worked out great if you take trades before the 8:30 AM open as it rallied to a higher high of 2109.75 ac little before 8 AM. I generally wait for the 8:30 open so I had to look for something else.
There were two possibilities for the day session. First, we could continue to look for a rally above our reference prices, either the overnight high or Tuesday’s high. The other potential setup was a move back below the session open (and roughly Tuesday’s close) at 2103.00. A drop below 2103.00 would mean traders who purchased overnight would then be in a losing position, making them more likely to sell out, especially if the market continued to decline.
The high of the day session open was 2108.50, below our upside reference prices. The weakening momentum of the lower high carried through as it dropped below 2103.00 about 10 minutes into the day session. There was a subsequent rebound however it made a lower high to 2105.25 before the selloff resumed.
Stocks worked lower this morning, moving lower in the “3 pushes” pattern that is often the structure of market moves. The series of lower highs and lower lows over the morning suggested we should stay short and work our stops lower. Eventually it would have been logical to get stopped out of shorts early in the afternoon.
If you were stopped out, you could continue to look for shorts later in the afternoon. In an exchange I had with a trader today, trending moves often assert themselves toward the end of the day so you could have been looking for another short sale opportunity- maybe the 1:30 PM failure at 2100.00 would have been a sell signal.
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