This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Thursday, May 3rd, 2012.
There are all sorts of sayings about how you learn more from your losers than your winners. In that spirit I thought I would go through a trade in the soybeans today.
Yesterday July soybeans had a selloff out of a breakout setup, closing near the low of the session. For the day following a breakout sale I tend to look for a Taylor Trading Technique Buy day. A TTT Buy day often occurs when a market is pushed down “too far”, pushing price below “value”. This selloff can turn into a bear trap as weak longs sell out and overly aggressive sellers continue to sell lower.
When a TTT Buy day follows the script the weak hands selling is absorbed by the “smart money” who get long at “cheap” prices. As the weak hand selling expends itself, the market bottoms and starts to rally. The ensuing rally feeds on itself as it moves farther from the session low and the market ends up closing toward the high end of the day’s range.
Taylor developed the TTT in an effort to ride the coattails of the “smart money” traders. The previous session low is monitored as a “reference price” — the move below the previous low tells us to start looking for a turn back up and a subsequent move back over the previous low is the trigger to go long.
While a breakout sale day leads us to anticipate a Buy day for the following session that’s not a sure thing trade — sometimes the selling pressure carries over into the following session.
So for this morning I came into the morning session stalking a Buy day move, watching yesterday’s low at 1481-0 was the reference price. On this morning’s open it quickly pushed under the reference price and then ran up, but couldn’t rally over last night’s high at 1488-6. I normally don’t like to trade on the open so I left this move alone.
After the initial rally stalled it pushed back under the reference price and I started looking to get long if there was another rally. I put in to get long on a move over 1483-0 (the 20 period EMA of 15 minutes, an entry filter I like to use). This got hit about 10 AM.
I placed the initial stop loss at 1477-4 (75% of the move from 1483 to the session low). At first things looked kind of promising but the follow through took it to 1484-4 and about three minutes later it made a double top there (not only was it a double top but it was lower than the morning high at 1486).
It tailed off, pushing under the reference price to 1480-4. The next rally made a lower high and things were looking increasingly less bullish. When the 1480-4 low was taken out it was time to close long positions (especially with crude oil and the metals selling off hard).
So we were flat, with a small loss. We would have looked to buy on any sign of strength but as of Noon there hasn’t been any so we’ll likely stand aside for the balance of today and look for a Buy day for tomorrow.
© Scott Hoffman