The eMini S&P futures had a breakout setup for today, following two narrow range and directionless sessions. The breakout setup gave us a good early morning trade opportunity.
Stocks had seen two quiet sessions this week, showing relatively directionless trading around the middle of the recent range. Wednesday’s trade was especially quiet, with an NR4 and a sizable decrease in trading volume. This low volume range contraction set the market up for a larger directional move IF it moved out of the recent range.
For a breakout trade we normally start with the previous session high and low as our reference prices. Our premise is that a breakout of the previous day range leads to a positive feedback loop move as it moves away from its balance point area.
In this morning’s watch list for Swing Trader’s Insight I suggested we use the Wednesday low of 2387.50 as our reference price for a downside breakout and the overnight high of 2395.25 as our first upside breakout level. We would look to short on a break below the lower reference price or go long on a rally above the upside reference price.
The 8:30 AM open was slightly lower, and the market sold off from there. The Wednesday low was penetrated around 8:45 AM, triggering our short sale. The initial stop loss could go above the day session high of 2392.25 and then trailed lower as the market sold off.
The market continued lower for the first hour of the day, making a double bottom at 2379.00 by 9:30 AM. The failure to take out that low was a cue to cover shorts or at least tighten down stops to lock in profits. After covering shorts we could either look for a second short if the market broke below the 2379.00 low or potentially go long if here was an upside reversal (possibly now using the 2387.50 low as an upside reference price.)
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.
Risk Disclosure
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