By the Taylor Trading Technique (TTT) the eMini Russell futures are on the Sell Short day of the cycle today. This meant we would anticipate an initial rally that would fail and lead to a selloff. The key would be to look for where and when the rally failed and short the market when it turned down.
For a TTT Sell Short day we watch the high of the previous session as a “reference price”. An initial move above the previous day high tells us to begin to look for a downturn. A subsequent move back below the previous day high is our trigger for a short sale.
The intraday chart below shows how the morning unfolded. The reference price for the short sale was the previous day high of 1181.20, and the market spent much of the early morning trading above that level. In the stock index futures I generally look to enter trades after the 8:30 AM CT stock market and futures pit open as liquidity tends to be better and in my experience there are fewer fake out moves.
Waiting for 8:30 worked fine for the Russell today as it didn’t begin to test the reference price until after the stock market open. After 8:30 there were three different moves below Tuesday’s high; any of these could be a trigger for a short sale. The initial stop loss could go either above the last premarket swing high of 1185.20 or the pit session (post 8:30) high of 1184.00.
As I wrote in the STI morning watch list (see HERE) we would watch last week’s swing high of 1177.50 as a pivot point. I use pivot point and reference price interchangeably; in either case I refer to a price level by which we can gauge market action. In this case we would watch 1177.50- if it held as support we would look to cover shorts, while if it dropped below we would assume the market would continue to move lower.
The 1177.50 pivot point didn’t do hold for long, and taking it out accelerated the selloff. I like to watch levels like this because it’s an obvious price level, meaning a lot of other traders will watch it as well. How a market reacts to an obvious price level gives us insight as to what other traders are doing, which helps us make trading decisions.
The selloff continued into the morning. The next downside pivot point was the Fibonacci retracement level at 1174.35 (see the daily chart); this was a 50% retracement of the move from last Thursday’s low to last night’s high. It continued to make lower lows, making a session low of 1171.80 around 11 AM.
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.
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