On Wednesday the eMini S&P futures sold off out of a breakout setup. The selloff on Wednesday meant we would anticipate a Taylor Trading Buy day for Thursday, and we got a good rally this morning.
Tuesday was a breakout setup (range contraction, directionless session). On Wednesday we got what the breakout setup predicted – a strong directional move when the market broke below the previous day low, with as close near the session low.
A breakout move tends to create an “overbought” or “oversold” condition, which is the market condition the Taylor Trading Technique (TTT) looks to identify and exploit. This makes identifying breakout trades doubly useful – both for the breakout day itself as well as an anticipated TTT setup and trade for the following session.
In this case, the downside breakout on Wednesday meant we would anticipate a Taylor Trading Buy day for Thursday. Specifically, we look for an initial move below the previous day low, our reference price. This initial move lower serves to push out some of the last weak longs and to get late traders to “sell in the hole” before a turnaround. After the move below the reference price we look for a subsequent move back above it to be our trigger for a long entry.
For the June eMini S&P today, our reference price was 2354.75 (the Wednesday low). The 8:30 AM open was 2354.25, and the market traded back and forth over the reference price until 9 AM. You could get long anywhere in the first half hour (a more conservative entry would be to wait for a move above the first day high of 2358.75). The initial stop loss for this trade could go below the day session low of 2351.50 or a lower overnight low if you wanted a wider stop.
The market rallied strongly for the first hour of the session. It reached the 2367.00 overnight high, the first objective, around 9:30 AM however it was unable to clear it. This could be the signal to take profits if you wanted to take a quick profit.
I drew a Fibonacci retracement level on the intraday chart – 2359.50 is the midpoint of the morning rally; I’m watching that as a pivot point for trend for the rest of the morning. If it can hold above there we might see another rally this afternoon. If it can’t hold we could see a washout this afternoon.
The 2359 area support held through the early afternoon. This led to a new rally around 1 PM and reached the 2374.50 Fibonacci retracement objective (see the day chart) by 1:30.
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.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.