Success in trading, as with many things in life, is contingent on preparation. For trading, preparation does two things for you. First, it allows you to identify trade opportunities when they occur, allowing you to act promptly. Second, preparation gives you confidence to act when trade opportunities arise, making it easier to do the right thing at the right time.
Yesterday I wrote about a breakout trade setup in the gold futures (read that HERE.). Because of that rally, the Taylor Trading Technique (TTT) I use for Swing Trader’s Insight said to anticipate a Sell Short day for Friday – a failed rally above the previous day high, followed by a selloff.
Although our major “play” is to short a market when it’s on a TTT Sell Short day, a textbook Sell Short day starts with a rally above the previous day high. This initial rally serves to squeeze out some of the weak shorts and pull in the last longs, who end up buying near the high of the move (something I’ve done more than once).
This initial rally is our heads up to anticipate a failure and downside reversal. If the market doesn’t sell off, we do nothing. However, if the market sells off and drops below the previous day high, we sell short, looking for the market to start a decline.
Thursday night did have a TTT Sell Short trade, reaching a high of 1164.30 and then selling off. If you were trading last night you could have taken this trade. I generally restrict my trading to US hours, so I started watching it when I got in the office at 7 AM.
Just after 8:30 gold made another push above our reference price of the Thursday high. Not only did this rally fail, it was one of a series of lower highs from the overnight trade, a sign of weakening upside momentum.
The move back below the reference price was our trigger for a short sale. The initial stop loss could go anywhere from the day session high of 1161.40 up to the overnight high of 1164.30. Our short sale was contingent on evidence of downside momentum; if the market went up and made a new high then we would liquidate our shorts and look for another opportunity later.
Gold sold off from this high. It initially consolidated around the morning low of 1156.50 before falling hard late morning / early afternoon. It did find support at 1151.70, the December 27 high and an upside breakout point on Thursday.
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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