The Taylor Trading Technique is a trading method that is largely based on the principle of action and reaction- the direction of today’s market move often results in a move in the opposite direction in the following trading session. Thus, if we can identify a market’s direction today, we can often anticipate its likely direction of movement for tomorrow. The second part of the process is to recognize when a market is beginning to make the move we anticipated and enter a trade when that occurs.
Breakout moves are often followed by a good Taylor Trading Technique trade. A breakout move often leads to an “overbought” or “oversold” market, which are conditions the TTT seeks to identify and exploit.
The stock index futures made this sequence today. Looking at the eMini S&P futures, we see that Tuesday was a breakout setup, as shown by the range contraction and doji bar. This led to a breakout rally on Wednesday, with a strong rally above the Tuesday high leading to a close near the top of the daily range.
The TTT suggests that we should anticipate a Sell Short day in the session following a breakout rally, as the rally creates an “overbought” market that squeezes out the weak shorts and attracts late to the party traders who buy at what turns out to be the top.
For the December eMini S&P futures we would look for a move above 1980.75 to be the last hurrah for the rally, with a subsequent move back below that level serving as the trigger for a short sale. For the stock index futures I normally look for this move after the 8:30 AM stock market and futures pit open- I don’t really like to trade stock indices in the pre-market trade.
The 8:30 open was 1979.75 and it promptly rallied to a new session high of 1985.75. This told us to look for a short sale opportunity, which we got around 9:20 when it fell back below the Wednesday high. This move (or the second test around 10:25 AM) was the trigger for our sale.
The initial stop loss went above the session high of 1985.75; if it retraced back up to make a new high it would indicate the bearish momentum that got us short was no longer in effect.
The eMinis sold off over the morning and early afternoon, making a session low of 1971.50 around 12:40 PM. If you didn’t want to risk a profitable trade into the FOMC announcement you could have taken profits before 1 PM. If you wanted to stay short, the chart supported this as it had made lower highs and lower lows over the morning.
The market was selling off into 1 PM and the FOMC statement gave it more downside momentum. 1916.125 was a 50% retracement of the move from the Tuesday low to today’s high; it would be a good reference price / pivot point to see if the selloff would continue. It made a new session low of 1962.00 by 1:15; the rally back above the Fib level and a subsequent higher low of 1964.00 (made around 2:10 PM) suggested a low was in.
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.
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