In this morning’s watch list for Swing Trader’s Insight I highlighted a breakout setup in the EMini NASDAQ futures. An overnight upside breakout had failed and the NASDAQ has been the weakest of the stock indices so I was looking for a relatively aggressive short entry if it broke out down.
Normally we would use the previous day high and low for breakout reference prices; this would have given us 4758 on the upside and 4681.75 down. However, given the failed overnight rally and how far it was above the Friday high, it made sense to look for an earlier short side entry.
The overnight low had been 4733.50 and 4731.88 was a 50 percent retracement from the Thursday low to the overnight high so I suggested we watch the 4730 level as our reference price for a downside breakout for the day session.
4730 was taken out a few minutes after the 8:30 open, triggering our short sale. The initial stop loss could go above the day session high of 4750.75. (If the high was taken out it would be a signal that momentum had turned up and we would want to be out of shorts.)
The selloff gained steam as the morning progressed. We expected this and looked to take advantage of the overnight longs coming under increasing pressure to sell as the market declined. By 9 AM it tested the psychological 4700 level and then made another wave down to the session low.
The new low turned out to be (at least temporarily) a successful test of last Thursday’s low of 4679.25, giving a signal to cover shorts if you were so inclined. If you did cover shorts, you could watch for a second sale if it took out the area from the Thursday low to todays low.
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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