This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Thursday, March 27, 2014.
There’s a saying about trading that says that the trades that scare you are often the very trades you should take. The stock index futures had a Taylor Trading Technique Buy day signal for today. This looked like a scary trade this morning but it worked.
The recent TTT cycle is clear on the daily chart of the eMini S&P futures. Tuesday had a breakout setup; this ended up resolving itself in a downside breakout move late in the session on Wednesday.
Wednesday had a number of patterns that suggested what we should anticipate for the eMinis for Thursday. First, Wednesday’s downside breakout move meant we would anticipate a TTT Buy day for Thursday. Second, Wednesday was a WR7 day; this told us another big directional move was not likely. Third, the close was in the bottom 10% of the day’s range. The low range close mean we would be alert for both an early session selloff (below the previous day low), and we would look for an early session reversal to a rally.
In sum, we would anticipate an early session move below Wednesday’s low, followed by a reversal to a rally. We would look to go long when we had evidence of the rally – a move back above our reference price(s).
I said reference prices because there were two levels to watch for our TTT Buy day reference price. The “textbook” reference price was Wednesday’s low of 1841.50. You could have also used the overnight low of 1839.25; if you want to treat the overnight trade as a distinct session from the standard stock market hours, the overnight high and low can be used as additional reference prices.
The 8:30 AM stock market open saw the anticipated selloff, breaking 10 points in the first 15 minutes of the day session. This is where the selloff ended, and the expected rally began. By 20 minutes into the day, they traded above the overnight low (for the first long entry signal) and 15 minutes later, it rallied over Wednesday’s low (the second long entry).
The initial stop loss went below today’s low of 1834.00, although the pace of the rally made that a moot point this time. The overnight high of 1848.50 was the first objective and resistance for a rally; the inability to trade above that high was a signal to take profits.
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