In last night’s Swing Trader’s Insight, my comment in the eMini S&P futures was “exit breakout buys, (Taylor Trading) Buy day. Although we didn’t get a standard Taylor entry this morning, an alternative entry yielded a good day.
Stocks had two weak days to begin the week. Monday was a bearish day, closing in the lower third of the day’s range. Significant for the next session, Monday’s range was an NR4 (narrowest of the previous four sessions); giving a breakout setup for Tuesday. Tuesday was another bearish day as a late session selloff meant another low range close.
Yesterday’s selloff out of the breakout setup meant we would look for a Taylor Trading Buy day for today. For a Taylor Trading Buy day, we look to bottom and then rally, as the downside breakout would tend to push the market to a level that was “too cheap”, giving the “smart money” an opportunity to buy the market at low prices ahead of an ensuing rally.
The standard pattern for a Taylor Trading Buy day is first, a dip below the previous day is the cue to look to go long. The entry trigger is the market rallying back above the previous low. The initial push below the previous day low is a vestige of the selloff that occurred previously. It’s the move that brings in greedy sellers or the people who panic and sell out of longs at the bottom.
It’s great when we get those setups – they are easy to understand, making execution low stress, and they have well defined risk (stops go no lower than just below the low of the day of entry). However, markets don’t always neatly follow the playbook, and finding alternative setups can give you more opportunities.
A key principle of the Taylor Trading Technique is to enter trades when we are confident the market is headed in the anticipated direction – on a Buy day, we go long when the market is already trending higher. We look to go long early in the rally, but we don’t buy until we’re confident the market is already rallying.
That brings us to today. In the morning comment for Swing Trader’s Insight, I said we should watch for a move under the Wednesday low – a standard TTT setup. However, I also suggested we look to go long if the market rallied above the overnight high of 2341.50. I wanted an alternative entry because a drop below the Wednesday low appeared to be a low probability move (the market was around 2338) and a rally above the overnight high would be another way to confirm the market was in an uptrend.
We got our first trigger for long entry right off the 8:30 AM open. If you didn’t want to trade right on the open (it’s often emotional and volatile and sometimes it’s prudent to wait to get past), we got as second buy signal shortly after 9 AM. The higher low made around 9:35 AM was a good sign for the market, and the rally took off from here.
Essential Guide for Futures Swing Trading
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