The EMini NASDAQ futures had a breakout setup for today. While I normally use the Taylor Trading Technique to look for trades, breakout setups are special situations.
The NASDAQ was interesting this week. Monday saw a strong rally out of another breakout setup; it was also a Taylor Trading Buy day (there was an early session move below the previous day low, which led to a rally over the remainder of the session.) The following session is usually either a Taylor Trading Sell day (consolidation around the Buy day high) or it’s a Taylor Trading Sell Short day (a selloff to take away the previous day breakout rally.)
Tuesday’s pattern in the NASDAQ was a Taylor Sell day as the market did consolidate around the Monday high. However, Tuesday was an NR7 day as well, meaning on Wednesday we would anticipate a breakout move (potentially in either direction) rather than the Taylor Trading Sell Short day we would otherwise look for.
When a market has a breakout setup we look for the market to make a directional move. Specifically, we look for a move beyond close in support or resistance. In turn, that initial move serves as a springboard to a larger move in the breakout direction, as the market gains momentum in a positive feedback loop.
For the NASDAQ futures, our reference price (breakout level) was the Tuesday high of 4796.50. Additionally, there was Fibonacci retracement resistance just below 4700, so clearing that level could add to upside momentum.
The market spent much of the morning trading flat to lower, finding support around the Tuesday low. Just before Noon it pushed above the Tuesday high, triggering our long entry. This kicked off a bigger rally and the market has been trending higher over the course of the afternoon. This rally is characteristic of a breakout day, where the positive feedback look tends to cause the market to move in one direction, with small or no pullbacks to allow for later entries or relief for those on the wrong side of the market.
I learned about the Taylor Trading Technique from Linda Bradford Raschke. Her application of the TTT seemed to be practical and flexible, using it when it would help trading, rather than applying a rigid TTT framework to market analysis. When I get questions and inquiries from other (especially new) TTT practitioners, I think my expedient approach isn’t the strict methodology some would prefer. I think a trading method should be judged by its results, not how exactly its rules are applied, so this works for me.
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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