The Taylor Trading Technique is largely based on the principle of action and reaction- a move in one direction today will often see a reactionary move in the opposite direction tomorrow. This is a frequent occurrence in the session following a breakout move.
Following the USDA report, soybean futures had a breakout selloff on Wednesday, closing near the bottom of the daily range. For the following day I often look for a Taylor Trading Technique move in the opposite direction, so we anticipated a TTT Buy day for Thursday.
On a Taylor Trading Buy day we look for two things. Frist, we look for the market to move below the previous day low; this gives us a heads up to look for a potential trend reversal. We then go long when the market trades back above the previous day low, and look for the market to trend higher over the session.
In this morning’s Swing Trader’s Insight morning watch list I pointed this out (read it here); we would use Wednesday’s low of 1027-6 as our reference price. There was additional support at 1026-2; the 20 day EMA.
Beans sold off at the end of the night session following the weekly USDA export sales report, making a session low of 1025-6 before recovering to stop at 1029-0.
The day session open was 1028-6, and it quickly fell to a day session low of 1027-0. This move below the Wednesday low was our signal to look to buy, and the subsequent rally above the Wednesday low was our trigger to buy.
The initial stop loss for this trade was the night session low of 1025-6. We want to be long only as long as the momentum is in our favor; if the market fell back below the low it would tell us the momentum had turned against our position.
The rally gained momentum off the open, taking out 1040-0 (overnight high) by 9:20 and 1043-0 (Fibonacci retracement level) about five minutes later. The session high of 1048-2 proved to be resistance as twenty minutes of work was unable to move above that level, and a small correction ensued.
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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