For my Swing Trader’s Insight advisory I like to trade breakout setups on the days the government’s energy inventory (EIA) reports are released. Natural gas was a day early and had a breakout sales on Wednesday so today we looked for a Taylor Trading Buy day.
(I do believe the Trump administration will create more breakout trade opportunities. New, unexpected statements and policies are likely to create breakout moves as traders are forced to react quickly to policies that change market fundamentals. Breakout trades, in turn, are likely to increase the swings that the Taylor Trading Technique seeks to follow.)
Last Friday and then Tuesday saw two doji days, which gave the breakout selloff we had on Wednesday. A breakout day normally shows an early move beyond the previous day high or low which causes an extended move in that direction.
A breakout move often causes a market to “overshoot value” and become “overbought” or in the case of natural gas yesterday, “oversold”. This selloff gives us the setup for today’s Taylor Trading Technique (TTT) Buy day.
For a Buy day, we look for an initial move below the previous day low. This move lower pushes out some of the weak longs and encourages new sellers to sell at lower prices. For the TTT Buy day we anticipate this move lower will fail and a recovery rally to begin. We look to go long when the market moves back above the previous day low.
This rally initially pressures the late sellers into covering shorts and the higher it goes, the more buying it attracts, in a positive feedback loop. This causes the market to continue to move higher over the session, the move we seek to capture.
We placed our initial stop loss below the morning lows- if the market falls back to make a new low then the market doesn’t have the momentum we anticipated. In this case we did get a good rally this morning. 3.385 proved to be resistance for March natural gas – it is a 50% retracement of this week’s decline and a pivot point for this morning’s rally. If the market was able to hold above there we could look for an advance to this week’s high; the failure was our signal to take profits.
Essential Guide for Futures Swing Trading
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