Observing market behavior around old highs and lows can give you valuable insights into market action. If you identify possible scenarios in advance, you can anticipate potential market moves and be ready to act when trade opportunities present themselves.
In last night’s Swing Trader’s Insight, the eMini S&P futures were identified as a breakout setup- Monday was an inside and NR4 day. This setup tells us to look for a potential breakout move (a relatively large move in one direction) if the market traded above or below a “reference price”; e.g. a large rally if it moved above resistance or a large selloff if it moved below support.
For a breakout setup we often simply look to go long if it trades above the previous day high or go short if it trades below the previous day low. In this case, however, there were extenuating circumstances as the market was near the previous contract high (similar to a setup I wrote about earlier this month; read my blog post HERE.)
For the eMini S&P futures today, the fact that the market was so close to the previous high meant it was a level that was likely more significant than the previous day high. In the STI morning watch list (read that HERE) I wrote that we should look for one of two potential scenarios. First, we could look for a breakout rally if the market traded above the 2072.25 contract high. Second, we could look to short it if a rally above that level failed. (This was in contrast to a standard breakout setup where we use the previous day high for the reference price.)
EMinis rallied to a new high of 2073.00 after the 7:30 AM GDP report, and then tailed off as they went into the 8:30 AM stock market open. This allowed us to continue to look for the two setups laid out in the STI watch list.
The 8:30 AM open was 2070.25, and the market initially rallied. By 8:38 AM it moved above the previous contract high but the rally was unable to take out the overnight high of 2073.00. This failure was the signal to look for a short sale, and we got our opportunity about a minute later when it fell back below the contract high.
The initial stop loss for this trade would be just above the 2073.00 session high; a subsequent rally above there could signal an upside breakout. Selling pressure mounted as the morning went on, and by 10 AM it fell below the overnight low of 2064.00. As it turned out, the overnight low was a good reference price to decide whether to stay short, and the failure to extend the selloff below there was told us to cover shorts.
The market has subsequently rallied, and is now back up around Monday’s 2069.00 high. I would look for a potential upside breakout for the next hour or two, and consider going long if the rally holds. I may add to today’s post if the balance of the day is interesting.
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.
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.
THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.
TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.
YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.
GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.