In my previous post (read it HERE) I wrote about a breakout trade in gold futures today. In the session following a breakout move we often anticipate a move in the opposite direction, and the Taylor Trading Technique gives us a framework and setup to trade that move.
On Thursday the EMini S&P futures had a breakout rally. Thursday was a good example of a Taylor Trading Technique Buy day, where the market opens near the low of the daily range and then rallies to close near the top. Thursday’s rally was a good crescendo to this week’s move, as the market closed at a nearly two week high.
In the Taylor Trading Technique cycle, a Buy day is normally followed by a Sell day. A Sell day is a session in which we may see some upside follow through from the previous day. A Sell day would then be followed by a Sell Short day, which sees the market top out and then sell off.
The logic behind Taylor Trading Buy and Sell Short days is that markets tend to overshoot “value” as many traders chase the move. It is this overshoot that gets you to buy at the high and sell at the low. A breakout move often overshoots “value” on the first day, so a breakout rally is often followed by a Taylor Trading Sell Short day (likewise, a downside breakout is often followed by a TTT Buy day).
As we expected a Taylor Trading Sell Short day for the EMini S&Ps today, we would look for an early session rally. Further, we would look for this early rally to fail, and short the market when we saw the market fail.
In this morning’s Swing Trader’s Insight watch list I pointed out two reference prices- the pre-market (pre 8:30 AM) high and the previous day high. An initial move above those highs would be a heads up to look for a failed rally and a subsequent move back below the high(s) would be our signal of a trend change / short sale.
The pre 8:30 open was 2065.50 and Thursday’s high was 2058.75. The first move of the morning was a rally to make a new session high of 2068.00. This rally was likely enough to stop out some weak shorts and get some breakout chasers to buy. This proved to be the high of the session, and the market started to edge lower. Aggressive traders could have sold on the move back under the 2065.50 high, with a stop loss above the 2068.00 session high. A series of lower highs through the morning indicated waning momentum.
Cautious traders could wait for the standard Taylor Trading entry, when it broke Thursday’s low of 2058.75. This sell signal first occurred shortly after Noon CT, and the final opportunity came around 1:45 PM. The selloff continued, dropping to a session low of 2044.50 around 2:30.
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.
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.