The Taylor Trading Technique seeks to identify market actions (moves) and then anticipate likely reactions in the opposite direction. The past two sessions in the soybean futures have been a good example of the action – reaction cycle.
In yesterday’s blog post (read it HERE) I wrote about a breakout trade buy in soybean futures, taking advantage of yesterday’s rally. The Taylor Trading Technique (TTT) says to look for a move in the opposite direction for the following session; this gave us a short sale opportunity this morning.
The TTT seeks to identify and take advantage of setups where other traders are likely to make emotional (and often incorrect) decisions in volatile markets. Breakout moves often create these emotional market conditions, which we certainly are seeing recently in soybeans.
Thursday saw a breakout rally in soybean futures, as they opened near the low of the daily range and ended up closing near the high. For the following session the TTT suggests we look for a Sell Short day- a session in which the market may see early session follow through, followed by a rally failure and subsequent selloff. Our setup for the TTT Sell Short day is to identify the rally failure and short the market when the market rolls over and begins to sell off.
For a TTT Sell Short day we begin by looking at the previous session high as a “reference price”; a level at which we look for a potential rally failure and downturn. However, breakout moves don’t necessarily “use up” their upside momentum on the first day; they often show follow through rally in the next session. When this is the case, we can still look for a rally failure in order to get short, however we can look for higher price levels for our reference price.
For the November soybeans, in this morning’s Swing Trader’s Insight Watch List I suggested we watch the $10.00 level as our reference price. I chose the $10.00 level because of its psychological significance- big round numbers tend to attract a lot of attention. Last night’s trade made a high of 9.97-0 and it closed on the session high, meaning a higher open was likely for the day session, with $10.00 a logical level to watch.
The day session opened at 9.97-2 and rallied to 10.02-0 before turning back down. The drop back below $10.00 was our trigger for a short sale as we anticipated a corrective selloff. Our initial stop loss could go above the session high; if the market rallied back up to make a new high it would indicate the bulls were still in charge, and we only want to be in a trade as long as the momentum is in the direction of our trade.
9.85-3 was the midpoint of the overnight range and a good reference price to gauge whether the selloff was likely to halt or continue lower. The market’s ability to regain this level was a signal to consider covering shorts, given that the market had dropped 20 cents / bu. in 40 minutes.
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.
Risk Disclosure
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 third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.
