In last night’s Swing Trader’s Insight I labeled the EMini Russell futures as a breakout setup. This setup told us to anticipate a big market move today; here’s how we traded it.
On Monday and Tuesday the Russell had two narrow range days and Tuesday was an inside day. This was the pattern that told us to anticipate a breakout move for today, which I pointed out again in this morning’s Swing Trader’s Insight watch list (read it here).
When a market has a breakout setup we look for it to make an initial move beyond nearby support or resistance, with this initial move serving as a springboard to a larger move in that direction. (This is in contract to the Taylor Trading Technique, where we often look for a change in trend around a support or resistance point).
In the watch list I suggested we watch the Monday low of 1257.40 as the reference price for a downside move. Specifically, we would look to short the EMini Russell futures when the market moved below our 1257.40- this would tell us the market was breaking down, and we would look to stay short as long as the market trended lower today.
The break of our 1257.40 reference price occurred around 8:35 AM, about five minutes after the stock market open. This break triggered our short sale (I like to use resting stop orders to initiate breakout trades; that way I don’t have to scramble to place orders.). The initial stop loss for this trade went above the day session high of 1261.40- if it rallied back up to that level it would indicate our downside breakout thesis was incorrect.
However, there was no upside reversal today. As the session progressed, the market made a series of lower highs and (mostly) lower lows. The 1232.00 level was a significant Fibonacci retracement point on the daily chart; this level was hit shortly before the close.
Looking to tomorrow, I almost always close out trades on breakout days. Markets occasionally show follow through momentum in the next session however the odds are low of a second big move in the same direction, and we more often see a retracement against the breakout move direction.
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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