In this morning’s watch list for Swing Trader’s Insight I wrote that I would look to short the EMini S&P futures if it broke below the Wednesday high. A client who uses the Taylor Trading Technique as I asked me about this trade; here was my thinking.
By the Taylor Trading Technique my client and I agreed that the EMinis were on the Sell day of the TTT cycle today. For a Sell day we would normally look for a rally back up to the previous day high, at which time we would look to sell out of long positions purchased during the previous Buy day. We would then look to short the market tomorrow, on the Sell Short day of the cycle.
There were a couple of mitigating circumstances today, however. First, Wednesday was a WR7 day- the widest trading range of the previous seven sessions. This increased the odds that the rally was closer to using up its bullish momentum. Second, uncertainty over the economy and the forthcoming Trump administration feeds the volatility, meaning a market move would be more likely to continue , in a positive feedback loop (self-amplifying might be a more accurate term.)
For these reasons I thought a day session move back below the previous day high could trigger a self-amplifying selloff as lower prices would encourage more selling, either from longs bailing out or from traders looking to catch a down move. The lack of definitive news and uncertain opinion would likely reinforce a herd mentality.
The 8:30 AM open was 2168.25, and the first move was a rally to 2178.50. This reinforced my conviction about the short as it made the market look all the more like a TTT Sell Short day.
This initial rally failed as the market was unable to push above the overnight high of 2180.50. By 9 AM it moved below Wednesday’s low, triggering our short sale. Our initial stop loss could go in the 2174 area, roughly the midpoint between the day session high and our entry.
The ensuing selloff was strong, as anticipated, making a session low of 2147.75 by 9:35. A double bottom made around 10:10 was a signal to cover shorts as bargain hunters stepped in (for now.) If you wanted to look for a second trade, you could look to re short if the 21477.75 double bottom was broken.
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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