By the Taylor Trading Technique, today was a Taylor Trading Technique Sell day for the eMini S&P Futures. Normally this would mean we would look for a two sided trade around the previous day high, with a Sell Short day to come in the following session. In this case, however, there were some patterns that made a short sale a likely opportunity today (a day early).
Wednesday was a Taylor Trading Buy day. The market opened near the Tuesday low, made a new low for the move (nearly the lowest low in June) and then rallied strongly, closing near the high of the session, with the widest trading range of the previous seven sessions (a WR7 day).
The WR7, high range close, and the high in ROC made it more likely that Wednesday’s rally exhausted the upside momentum, which is what we would normally anticipate for a TTT Sell Short day. For this reason, in this morning’s Swing Trader’s Insight Morning Watch List I suggested we look to short the eMini S&P if it showed weakness this morning.
My morning comment today was to short the eMini if it broke below the overnight low; this would be a signal that downside momentum was picking up. As with any Taylor Trading signal, we anticipate moves however we don’t act on them until we have confirmation that the market is actually doing what we anticipated.
So for the September eMini S&P we would look to short the market if it broke below the overnight low of 2438.25 (At the time I wrote the morning note the low was 2439.00; after the lower low was made, we used that.)
The day session opened at 2440.00, traded to the Wednesday high, And then quickly dropped below the overnight low, triggering our short sale. After we got short we could place stop loss orders either above the day session high (2440.50) or the overnight high (2445.00).
A good selloff ensued from here. I had a first target of 2429.38; a 50% retracement of the move from the Wednesday low to the Tuesday high. I use these 50% levels as a pivot point to gauge market moves- if it holds we anticipate the market will work back to the recent extreme (would be the high in this case). If it takes out the 50% level we look to move back to where the move started.
Today the 50% rule worked; 2429.38 was broken and the market worked its way down to the objective of 2413.75, the Wednesday low. From here you could cover shorts as an objective was met or you could look to stay short, looking to see if the market breaks below the Wednesday low. Today’s selloff will likely mean we will anticipate a Taylor Trading Buy day for Friday.
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.
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