Failed breakout moves can be great trade setups for the futures markets and Taylor Trading Technique setups are often a variation of this. Today’s trade in the eMini Russell futures was a good example of this.
In last night’s Swing Trader’s Insight the comment for the eMini Russel futures was “exit breakout buys, Sell Short day”. Friday’s breakout rally meant today was a Taylor Trading Technique Sell short day, and there was a good short sale this morning.
Last Wednesday and Thursday were breakout setup days- Wednesday was an inside day with range contraction and a doji; Thursday had a bigger range but was a doji bar as well. Out of this we would expect a breakout, directional move. We got this on Friday with the rally after the monthly employment report. The final stage of this rally came with the move above last Tuesday’s swing high at 1194.70.
By the Taylor Trading Technique, we anticipate that we will get a TTT Sell Short day in the session following a breakout rally. We anticipate a market move will end and the trend will reverse when a market gets “too expensive” or “too cheap” and breakout moves often create these situations.
For a Taylor Trading Technique Sell Short day the standard setup is to look for a failed rally above the previous session high. The Russell fulfilled that pattern today however the move back below Friday’s high occurred around 1 AM last night. This gave us confidence in the Sell Short day signal however we needed to find another entry setup.
That’s why in this morning’s STI watch list I pointed out last Tuesday’s high of 1194.70. Friday’s rally above that price was a stage in the upside breakout; a subsequent drop back below that level would be another signal of a failed rally.
The break below the reference price came minutes after the 8:30 AM open, pulling us into out short sale. The open range high of 1197.50 was a good spot for the initial stop loss; if the market rallied back above the high we would want to take our loss and look for another short sale setup later.
The Russell made a strong selloff this morning, making a session low of 1176.90 around 11 AM. Note the 20 period EMA contained the selloff until a little after 11:30 as market action turned sideways.
Essential Guide for Futures Swing Trading
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