The grain futures are often good trading markets for trade setups using the Taylor Trading Technique. Today’s Taylor Trading Sell Short day for the soybeans was a good example.
Monday was a Taylor Trading Buy day and beans had a clear cut Buy day pattern on Monday. (daily chart is below) There was an early dip below the previous day low followed by a rally, ending in a close near the session high. Tuesday was a Taylor Trading Sell day; there was some upside follow through, although it had a small range (NR4 day).
That gave beans a Taylor Trading Sell Short day signal for today. On a Sell Short day we anticipate an early rally above the previous day high (our reference price). This rally should mark the end of the up move, getting the last bulls to buy and squeezing out the last of the weak shorts. When this rally fails and the market moves back below the previous day low we look to go short.
January soybeans traded higher last night, reaching an overnight high of 867-4 and closing at 867-0. As I wrote in this morning’s watch list for Swing Trader’s Insight, for the day session we could look for either a failed rally above the overnight high (867-4) or a drop back under the previous day high (864-0) to be our trigger for a short sale.
The day session opened at 865-6 and rallied up to the overnight high, but it was unable to move above that level and then began to sell off- the first signal the rally might have come to an end. About six minutes later it broke below Tuesday’s high, triggering our short sale.
The initial stop loss went above the session high; if the market subsequently rallied up to a new high it would mean the rally wasn’t yet over, so we would want to cover our shorts and reassess. Given Tuesday’s NR4 pattern, we could look for a potential continuation of the selloff if it broke below Tuesday’s low (breakout sale). The trend line off the daily chart would be our next downside objective and the contract low at 850-0 would be next.
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