Yesterday I wrote about how, using the Taylor Trading Technique (TTT) we identified and traded a down move in Treasury bond futures. The TTT anticipated a rally in T bonds today; this gave us a new trade opportunity today.
The Taylor Trading Technique describes a cyclicality where a market makes a low and rallies, then tops out and sells off over a number of days. This cycle recurs repeatedly in discrete stages so if we can identify a given day’s structure then we can anticipate the market’s likely action for the following day. The Treasury bond futures have been a good example of the rhythm described by the Taylor Trading method.
Yesterday the Treasury bond futures sold off out of as breakout setup (I wrote about that HERE). A downside breakout day is analogous to a Taylor Trading Sell short day- a session where the market opens near the top of the day’s range and then moves lower over the course of the session, closing near the session low.
In the Taylor Trading cycle, a Sell Short day is followed by a Buy day so that’s what we anticipated for today. (The Taylor Trading labels aren’t infallible. They tell us what to expect however we only act when the market actually does do what we anticipate.)
For a Taylor Trading Buy day, we look for an early move down- a textbook Buy day has a move below the previous day low. This move lower is actually a fake out, pushing out weak longs and encouraging shorts to sell at the bottom.
We then look for the market to bottom out and turn higher. The move above the previous day low is our signal to go long. From here we look for the market to move higher over the session.
Today’s intraday bond is below. Although the low penetration and buy signal occurred before I’m normally in the office trading, I thought I would use it as an example because the past two days are a good example of the Taylor Trading rhythm and bonds were a textbook Buy day today, even if the buy signal occurred early.
Although the Taylor Trading Technique doesn’t provide every minute detail of managing a trade, it does provide traders with two valuable things. First, it helps you anticipate a market’s likely directional bias for a session. Second, it gives you at least one trade setup to look for and act on when the market does what we anticipate.
Essential Guide for Futures Swing Trading
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