In this morning’s Swing Trader’s Insight watch list I reiterated last night’s call that the eMini S&P futures had a Taylor Trading Technique Sell Short day signal for today. This signal gave a great trade opportunity after the 8:30 AM stock market open.
The daily chart for the Sept. eMini futures shows the TTT cycle for the past days. Last Friday was an inside day, giving a breakout setup for Monday. Monday, in turn, was a breakout rally day, as the open was near the low of the session and the close was near the session high, reflecting Monday’s bullish trend.
Both Monday’s breakout rally and the TTT cycle told us to anticipate a Sell Short day for Tuesday. On a Sell Short day we look for an initial move higher, often above the previous session high. We anticipate this initial rally will fail, and look to get short when the market turns down.
For a “textbook” TTT Sell Short day we use the previous session high as our “reference price”; a level to gauge market activity. Specifically, an initial move above the previous session high gives us a heads up to begin to look for a rally failure. A subsequent move back below the previous day high (a bull trap) signals a trend change down and a short sale trigger.
I usually suggest we look to take stock index trades after the 8:30 AM pit and stock market open. The premarket trade is often choppy with fake out moves. Even if there are trade setups in the premarket, the stock market open often causes a retracement to give us a second chance for our anticipated entry.
This was the case today. The premarket session high was 1974.50. The 8:30 AM open saw another rally, this time making a new session high to 1976.25. This rally was our trigger to look for a short sale.
We got the first short entry around 8:50 AM as it fell back below the 1974.00 reference price. If you wanted to be cautious and wait for the 9 AM release of Yellen’s prepared statement, you got a second chance for a short as it rallied to a lower high of 1975.00.
Either of these signals were the short sale opportunity we anticipated. The initial stop loss would go either above today’s high of 1976.25 or the contract high of 1978.25. Either way, the TTT looks to follow market momentum. As long as the trend is down we look to be short.
Yellen’s testimony did nothing to relieve the market’s downside pressure. By 9:50 AM it dropped to Thursday’s low of 1962.50 (a move of approximately 11.00 points). Short term traders could look to take profits here as Monday’s low held. If you closed out the trade here, you might look to reshort if this low was taken out. If you were looking for more downside you could continue to lower stops as the market made lower lows.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
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.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADE PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF THE HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
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