This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Tuesday, January 14, 2014.
A basic concept of the Taylor Trading Technique is the use of previous session highs and / or lows to determine what a market is doing in the following session, to anticipate where it is likely to go and to take trades when it does what we anticipate. Depending on where the market is in the bigger picture, other price levels can be valuable reference prices.
The March silver futures had a big rally on Friday and Monday, moving up out of last Thursday’s breakout setup. Monday was the “exit breakout buys” day, sometimes this becomes a Sell Short day and other times the breakout rally continues. We can use the previous session high to determine whether or not the momentum has turned down; we only look to short the market when we see momentum roll over and turn down.
Monday’s pattern was bullish; it closed above Friday’s high and the close was higher than the open. Monday’s bullish pattern moved the Sell Short day signal over to Tuesday, with Monday’s high of 2047.0 as the Sell Short day reference price for Tuesday.
SIH daily Jan 14 300×196 Trading Silver Futures using the Taylor Trading Technique and Chart Reading
Tuesday’s rally put the market up to a resistance area in the upper 2040s area, just below psychological resistance at 2050. 2048 was the highest high of the past three months and yesterday’s rally was the third time it got up into this resistance area.
This was a time when I’m glad I don’t often trade overnight as it made a one cent new high to 2049 just before Midnight. By 7 AM it had sold off to the lower 2030s, leaving the market in a no man’s land for a trade. At the time, this was a market to monitor but there was nothing active to do early in the day session.
Silver started to rally after the 8:30 AM stock market open; around 9:20 there was a sharp move higher as it took out Monday’s high, the previous session high of 2049 and the 2050 area. As silver was still on a Sell Short day signal, we would still be looking for an opportunity to get short if the market fell back below the previous lows. This would give us confirmation that the market’s momentum had turned down.
SIH intraday Jan 14 300×198 Trading Silver Futures using the Taylor Trading Technique and Chart Reading
We got our short sale trigger around 10:15 as it fell back below our reference prices. The previous swing high of 2058 was a good initial stop loss point, although the speed of the selloff would have allowed to quickly tighten it up and reduce risk.
The previous session low of 2022.5 was the first downside target and a reference price for the selloff. It fell 10 cents below that level, to make a new session low of 2012.5About a half hour later it traded back above the previous low; this was a good signal to cover any remaining shorts.
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STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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