In this morning’s Swing Trader’s Insight watch list, my comment for the eMini S&P futures was: “It looks like we have a “cover breakout sales” day so a Taylor Trading Technique Buy day is in order.” (Read that HERE). Let’s take a look at the why (if you’re a TTT follower you might be asking this) and how you could trade it.
A strict count of the Taylor Trading Technique cycle would have today as the Sell Short day, following Wednesday’s Buy day (which I wrote about HERE). From there, the TTT would have a Sell day for Thursday and a Sell Short day for today.
Over the years I’ve talked to a number of traders who use the TTT to trade. A number of them have had a better understanding of the intricacies and details of the TTT; many know it better than I. However, this doesn’t necessarily make them better traders. Some of these traders adhere so closely to the rules that the rigidity of their thinking makes it difficult to use it in real world trading.
Following rules too strictly is like the difference between knowing the words of a foreign language and being able to speak it fluently. You become fluent by learning nuances and idioms; likewise, one path to successful trading is to learn how to be flexible in your thinking and analysis.
In last night’s Swing Trader’s Insight I listed the eMini S&P as a Sell Short day. (In my defense, I put a question mark after the SS day for the NASDAQ and I listed the eMini Russell as a Buy day). Then this morning I changed my call to a TTT Buy day.
Two points to be made here. First, I changed my call because that’s what the evidence said to do- overnight there was a move below the previous day low and by this morning it was trending higher. (In this context, you could view Wednesday as a breakout setup with Thursday the downside breakout out of it. That’s where the morning watch list comment came from).
The second point to make is that I’ve come to prefer to wait for the 8:30 AM CT open to trade. The premarket hours often see more fake out moves, and as the TTT generally looks for one trade per market per session, it makes sense to wait for the better setups we often see a little later into the morning. Premarket trade is still often useful; we can often use overnight highs and lows as additional TTT reference prices, something I’ve written about previously.
By the 8:30 open it was likely we weren’t going to get the “low violation” buy of a standard TTT Buy day entry, and the market had rallied enough that a trip back to Thursday’s low might just keep a selloff going. The bullish action meant we would want to look for alternate long entries in order to get long when we were confident the market was moving higher.
Two setups stuck out for me this morning. First, around 8:45 it made a day session low at 1904.25. It then successfully tested this low around 9:30 AM. This successful test was a buy signal in a lower timeframe version of the “low violation” buy of a TTT Buy day.
The second entry would be on a rally above the Fibonacci retracement level at 1913.88 (especially after the overnight high was 1913.75, just below that resistance). This resistance was taken out first around 10:30 AM and then for the final time around Noon CT.
For the first entry, the stop could go below the day session low of 1903.75. By the time it got to the Fib level entry I would want a tighter stop- I like the EMA that is on the intraday chart (it’s the 60 period EMA of 5 minute bars; I use it as a proxy for a different EMA I like to use that won’t display on my quote service).
We’ve seen a good extension of the rally this afternoon. Today shows the logic of the TTT- looking for on good trade setup and then trying to patiently stay with the trade as long as the market is heading in our favor. The next target for today’s rally would be Thursday’s high of 1925.75.
Essential Guide for Futures Swing Trading
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