On Tuesday the stock index futures sold off out of a breakout setup (I wrote about the EMini S&P trade HERE.). By the Taylor Trading Technique (TTT) we would anticipate a Buy day for Wednesday, and there did end up being a TTT buy day trade of sorts today.
Tuesday saw a big selloff out of Monday’s breakout setup (Monday’s bar is circled in green). It broke below the September low of 2100.25 but managed to regain that level before the close. Tuesday had the profile of a Taylor Trading Sell Short day- the market opened near the high of the session and then sold off over the day, ending with a close toward the session low.
In the TTT cycle, a Sell Short day is followed by a Buy day. On a TTT Buy day we anticipate the market will selloff below the previous day low, find support and subsequently rally. We look for this failed selloff as our setup to go long.
Stocks traded lower for much of the morning, continuing yesterday’s skittish trade. On a normal day we look for the TTT entry to occur relatively early in the day; this allows the market more time to trend in the anticipated direction. However, with today’s FOMC meeting looming as the most likely candidate for a stimulus to move the market, it was logical to look for a trade opportunity after the 1 PM communique release.
The S&Ps sold off immediately after 1 PM, taking out today’s low (2092.00) and the Tuesday low (2091.00) quickly and dropping to a new low at 2087.00. Momentum reversed here and a rally ensued. By about 1:10 PM it was back above the Tuesday low, triggering our long entry.
The initial stop loss for this trade was below the session low of 2087.00, and we would watch to see if the rally could regain the psychological pivot point of 2100. The market initially fell short of this, making a first high of 2099.75. About 10 minutes later it made a double top here; this was a good signal to take a (small) profit. If you did take profits here, I would continue to watch the 2100 level- a move above there could be a springboard to a bigger rally and a potential signal for a reentry on the long side.
Although today’s move was small, it still gave a good example of the rhythm of the Taylor Trading Technique cycle as well as how the TTT can be used to take advantage of the trading mistakes of others.
Essential Guide for Futures Swing Trading
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