This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog on Tuesday, May 20, 2014.
The analysis used for the Taylor Trading Technique consists of two steps. First, we observe a market’s recent activity in order to anticipate a market’s likely direction for the next session. After we determine which direction to anticipate, we use reference price levels to determine whether a market is moving as we anticipated. We most commonly use the previous session high and low for reference prices, but occasionally there are other levels to watch.
Today the November soybean futures were on the Sell Short day of the TTT cycle. Friday saw a small rally and then Monday saw a breakout move higher, out a narrow range / Sell day combination. The Sell Short day signal for Tuesday meant we could look for early session continuation to the upside however we should look for signs that the rally was ending and a selloff was beginning.
The previous session high of 1244-4 was our standard reference price for the Sell Short day; a selloff back below there would be a signal for a short sale. For Nov. soybeans today we could also use the 28 April high of 1249-2 as a reference price; the markets (in) ability to clear that level could also be used as a trade signal.
Beans rallied after the 8:30 AM open, making a session high of 1257-2 around 9 AM. This put it well above the two reference prices; we would look for a selloff back below them for our short entry trigger.
The first short entry came around 9:20 AM with the drop below the 28 April high. After bouncing back and forth for a few hours (and retesting the 28 April high) they sold off for good, dropping below Monday’s low around 11:20 AM.
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