Yesterday’s range contraction and doji bar gave gold futures a breakout setup for Wednesday, yielding a strong downside move this morning.
With the Taylor Trading Technique we are often anticipating a failed move and a reversal, the reversal serving as our trigger to enter a trade. With breakout setups we look for the market to move predominantly in one direction over the course of a session; we seek to enter in the direction of the move early in the session.
Gold futures had a breakout setup (of sorts) for today. There had been two consecutive doji days, and Tuesday saw range contraction (Tuesday was 65% of Friday). This gave us the idea to look for a breakout move today; this signal was corroborated this morning as the overnight range was within Tuesday’s high and low.
In the morning watch list for Swing Trader’s Insight I wrote that we should watch Tuesday’s low of 1114.70 as the reference price for a downside breakout. That meant we would short the market when it dropped below that level, in anticipation of a larger downturn.
This break came around 8 AM; the break of Tuesday’s low being the trigger for the short sale. The initial stop loss could have been placed either above the 1117.60 high (from ~7:50 AM) or above 1117.90 (20 period EMA).
The day turned into a textbook breakout trade as gold trended lower over the course of the morning, finally finding support around $1100. Will that prove to be a low? With breakout trades I prefer to take quick profits, as a big move in one direction is often quickly retraced. Longer term the trend appears to be pointing lower.
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.
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