Using the Taylor Trading Technique in Trending Markets- EMini S&Ps

The recent down trend in stock index futures made Taylor Trading Technique signals less obvious. Sticking to a more mechanical cycle count can facilitate trading in these markets.

In last night’s edition of Swing Trader’s Insight I labeled the stock index futures as being on the Sell Short day of the Taylor trading Technique cycle. The recent volatility has made it more difficult to do an eyeball chart reading to identify the TTT cycle. In this case, a mechanical count helped keep our bearings and anticipate likely play for the day.

Monday was a Taylor Trading Buy day. Although it was obscured by the fact that the market closed down from Friday’s close, the intraday pattern was bullish. For the EMini S&P futures, the session low of 1831.00 was made minutes after the 8:30 AM open, and by midday they had rallied to the day session high of 1950.75.

This meant Tuesday was a TTT Sell day. We would anticipate early strength (for Taylor’s “smart money traders” to sell out of positions they bought in the previous session). On a Sell day, we don’t usually expect to see too much upside, nor do we expect to see a major selloff- we look for the selloff the next day, the TTT Sell Short day.

Normally we look for tests of the previous session high (for a TTT Sell Short day) or previous low (for a TTT Buy day) to be our setup for a TTT trade. The recent down draft / trend has prevented the normal high to low, low to high swings of the Taylor cycle.

In trending markets it’s best to not try to overthink things. Stick to the TTT count to come up with the session’s likely directional bias and use that bias to find trade entries in that direction.

So when I wrote this morning’s comment for the EMini S&P I was looking for short sales setups. The overnight high of 1923.50 was a natural level, and 1900 was likely a round number pivot point. (I left it off the morning comment but the first overnight high of 1915.00 was another reference price as the first rally attempt above it had failed.)

The 8:30 AM open saw a rally above 1915 and then a turn lower. 1900 was taken out 10 minutes later, and the market began making a series of lower highs and lower lows as the morning progressed. This pattern stayed in place down to a day session low of 1875.50.

Sometimes the Taylor Trading Technique has an obvious rhythm- look to go long in a session after a big down day, or look to short in the session after a big rally. In strong trending or volatile markets it may be more productive to look at things more mechanically.