In last night’s Swing Trader’s Insight advisory, the stock index futures were labeled as a Taylor Trading Sell Short day, and we saw a good selloff last night. However, Mondays often behave differently than the other four trading sessions of the week (as I’ve noted previously) and today we got a very different trade opportunity.
The eMini NASDAQ futures saw a breakout rally on Friday, rallying out of Thursday’s narrow range day. We normally look for a Taylor Trading Sell Short day in the following session, as the market moves lower in reaction to the “overbought” or “excess high” (to use the Market Profile term) that was created by the previous day rally.
However, Sunday night and Monday often end up behaving as two separate trading sessions (I’ve written about this on other occasions, most recently in my blog post HERE.) so we could potentially look for a trade in either direction today, and the price action would tell us which side to trade.
The stock index futures traded lower last night, as we would expect on a Taylor Trading Short day. The eMini NASDAQ futures moved to a session low of 5318.00, a drop of about 70.00 ($1400) from the Friday close and just above last week’s low of 5315.
It recovered into the morning, and opened the day session at 5330.75. It then sold off, making a new session low of 5317.25 around 8:40 AM. Had the market continued to move lower, we could have been looking at a major selloff.
As it turned out, this low turned out to be a fake out, and prices promptly turned higher (This “low penetration” is a buy signal for the Taylor Trading method.). This reversal was the first buy signal for the morning, and a strong rally took hold.
If you missed the first buy signal but wanted to take a long position, the standard Taylor Trading Buy day entry level was the Friday low of 5347.50, which was hit around 9:15. The rally continued over the morning, reaching a Fibonacci retracement target of 5378 (a 50% retracement of last week’s selloff) late morning.
Treating the overnight session (especially Sunday nights) as a discrete trading session can help you view and analyze the market in a different way. In doing so, you can often better anticipate and trade, especially when markets are volatile. (There were similar moves in the other indices although in the case of the ES the overnight low wasn’t taken out in the morning.)
Essential Guide for Futures Swing Trading
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