Today the EMini S&P futures are on the Sell Short day of the Taylor Trading cycle, following the upside breakout Wednesday. For a Sell Short day we look to short the market on a failed rally, normally using the previous day high as a “reference price” for the short. However, we don’t always get the ideal setup so sometimes we have to adapt.
Stocks were sharply lower overnight after what seemed like an eternity of extremely low volatility. The EMini S&P made a low of 2542.50 around 3 AM, then bounced back to a high of 2551.50. Going into the 8:30 open, the market was around 2550, which was a long way from the Wednesday high of 2562.25. If we wanted to trade the Sell Short day signal, the odds of reaching the previous day high were pretty slim, so we needed to find an alternate setup if we wanted to trade it.
In this morning’s comment for Swing Trader’s Insight I suggested we should watch the early morning high of 2551.50 for a reference price for a short sale. If a market is trading far from a standard high or low for a Taylor Trading setup, prominent overnight highs and lows can be good prices levels to watch.
This morning we had a good trade with the alternate reference price. The 8:30 AM open was 2550.25, and the market quickly ran up to a day session high of 2254.75. This rally quickly failed, and the ensuing drop back below the 2551.50 reference price triggered our short sale. The initial stop could go above that day session high, and it proceeded to drop to a day session low of 2545.25. It’s too early to tell whether it’s going to work lower later today or whether we’ll see a rebound.
Occasionally I get asked if I trade overnight. I don’t, as I don’t like trading when I can’t keep an eye on the markets, and I have enough to do during daytime trading hours. However, that’s not to say that overnight trading might be worthwhile for those who can watch the markets at night, and the overnight trade certainly can give us structure to use for trading during the day session.
Essential Guide for Futures Swing Trading
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