The session before a big data day (like today’s employment report) often sees consolidative and directionless trade. This often resolves itself in a strong directional move after the data release. This move can be a good trade opportunity.
In last night’s Swing Trader’s Insight I labeled the stock index futures as “breakout mode” for today. Thursday’s doji bar and range contraction meant a large move in one direction was likely today. As the monthly employment report was released today, the setup and the market’s resulting action made sense.
By the Taylor Trading Technique we would normally be looking for a Sell Short day on Friday- a TTT Buy day on Wednesday and a Sell day on Thursday would be followed by a Sell Short day for Friday. However, because of both today’s employment report and Thursday’s pattern (on a Sell Short day we would look for a test of the previous day high), a breakout trade was more likely.
For the stock indices I generally don’t trade before the 8:30 open. I’ve found this can help avoid whipsaw moves; it also gives us additional time to watch the market. This can be especially helpful on days like today when markets can be volatile and difficult to trade. The eMinis showed this today, as the March S&P made a low of 1895.50 after the employment report only to rally up to 1910.75 about 40 minutes later.
The post NFP low gave us a reference price for our breakout trade, as I noted in the morning Swing Trader’s Insight watch list: “Watch the 1900 area as a pivot point this morning with the session low (1895.50) as the first downside reference price; the session open (1905.25) as the first upside level.”
The 8:30 open for the March eMini S&P was 1904.00. About 15 minutes later it dropped below the premarket low, giving our first sell signal. The rebound stopped at the 1900.00 pivot point and then turned back down, triggering our second sale about 20 minutes later as it continued below the Thursday low- the standard downside breakout level.
The midmorning low was 1874.00 and the market drifted higher through the morning. However, the lack of a vigorous recovery rally meant it was likely to push lower in the afternoon, a pattern often seen on breakout trade days. This occurs because as it gets later in the session, the more likely it is that traders on the wrong side of the market (or traders looking to play the momentum) recognize the trend and push the market farther in the dominant direction. (After I grabbed the charts, the ESH made a low of 1865.75, two ticks above the week’s low. Will that hold?)
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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