If a market shows range contraction and / or a lack of directional movement for a given trading session, we have a “breakout setup” for the following session. For my Swing Trader’s Insight advisory I use a market’s direction of movement for one session to anticipate which direction it is likely to go for the following day. The lack of directional movement of a breakout setup gives us a separate set of trade setups.
The Taylor Trading Technique is the basis for much of what I do for Swing Trader’s Insight. In a simplified description, if a market trends higher today then we will often anticipate a downward move tomorrow, while downward movement today often means we will anticipate upward movement for the next session.
When a market has a breakout setup, we don’t have the directional cues of a normal TTT day. A breakout setup may occur ahead of a report release (like the financial markets ahead of a monthly employment report) or it may occur for no discernible reason. Regardless of the reason, a breakout setup often is a heads up to anticipate an increase in volatility and a directional move.
Treasury bonds futures had a breakout setup for today. Monday was a doji bar (indicative of a lack of direction) and an NR4 day (range / volatility contraction). Whereas for a normal Taylor Trading Technique signal we anticipate a move in a specific direction, on a breakout setup day we should usually be willing to take a trade in either direction (because of the lack of a directional cue.)
Whether it’s a Taylor Trading Technique or a breakout setup day, the previous session high and low are price levels we should pay attention to. For a TTT day we tend to anticipate a move to fail and reverse against a previous high or low. For a breakout setup day we look for a move beyond the previous day high or low to be the springboard for a larger move.
For the December T Bond futures we would use yesterday’s high of 139-25 and low of 139-01 as our reference prices- we would go long on a move above the previous day high or go short on a move below the previous day low. We anticipate the move beyond the previous high or low to be the start of a trend day.
Today’s intraday chart above shows today’s activity. After spending the night session within Monday’s range, bonds broke above Monday’s high shortly after 8 AM. This triggered our long entry; the initial stop loss could go below the recent intraday lows.
Friday’s swing high of 140-01 proved to be resistance on the first run up; it settled back before continuing the rally, eventually reaching 140-16 (previous contract high) around 12:30 PM.
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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