The stock index futures had a breakout setup for today. For the eMini Russell futures this resulted in two trade opportunities- one overnight and another for the day session.
The NR7 and doji bar on Tuesday told us to anticipate a breakout move for Wednesday. For a downside breakout we would watch the Tuesday session low of 1173.80; shorting the market if it dropped below that level. Traders got that opportunity overnight as the market sold off, dropping to an overnight low of 1169.10.
I generally trade the stock index futures during the futures pit / stock market hours- between 8:30 AM and 3:15 PM Central. I find that by waiting for the 8:30 AM open we can avoid some erratic markets and it leaves us free to trade during the hours of best liquidity.
When I write the morning watch list for Swing trader’s Insight I’m writing with an eye toward what to do for the day session. For the Russell my comment was: “Breakout setup. From here I would look for a downside breakout on another move below the 1170.00 area; regaining 1174.00 could cause a rally.” I watched 1170 because it was a Fib retracement level (50% back from the 11/4 low to 11/11 high); another push below there could restart the overnight selloff.
On the upside I suggested the 1174 because it was the area around Tuesday’s low (1173.80) and the 3 x 1 DMA, a moving average I follow for stock index swings. My thought here was that the overnight move below Tuesday’s low led traders to short the market; a subsequent move back above there would likely lead to short covering, which could gain momentum as the market rallied.
This was a good example of how waiting for the day session open could keep you free to look for new trades. The Russell rallied into the 8:30 open, triggering a long entry a few minutes after the open. The initial stop loss could be placed below the 1171.30 low from just before the open.
As would be expected on a breakout day, the Russell has been making higher highs and higher lows today. The initial push higher reached 1178.60 and the next move made a new session high to 1180.40. The next upside target would be 1181.90 (Tuesday high), which is also the standard reference price for an upside breakout.
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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