On Thursday, crude oil futures sold off out of a breakout setup (Wednesday was an NR7 and doji bar day). Thursday’s action then gave a Taylor Trading Technique (TTT) Buy day signal for Friday, which gave us a good trade today.
Thursday’s pattern was what we would expect for both a downside breakout and a Taylor Trading Sell Short day. The market opened near the high of the daily range and proceeded to trend lower over the day, finally closing near the session low. The TTT says that we should anticipate a Buy day for the session following a day such as this. I like trading the Buy day after a downside breakout as the breakout move often has enough momentum to push prices “too low”, making the market “oversold”. (It’s OK to view markets as overbought or oversold, just don’t make that the sole reason for basing trading decisions.)
On a TTT Buy day we look for an initial move lower, below the reference price of the previous day low. I especially liked this setup as the $51.00 level is support for December crude oil (51.04 is a 50% retracement of the rally off the Oct. 6 low). IF the market held above or successfully tested the $51 level then an ensuing rally would be likely.
In this morning’s comment for Swing Trader’s Insight, my comment for Dec. crude oil was: “Taylor Trading Buy day. 51.28 is the reference price and for now I’d wait for it to recover it before going long. Aggressive traders could look to buy against 51.00 support.” At the time of writing, the market was below the Thursday low; I wanted to confirm the recovery by waiting for it to regain the reference price.
As it turned out, the aggressive entry worked fine, as there was a successful test of 51.00 at 8 AM. The recovery above the Thursday low of 51.28 came about 15 minutes later, triggering the conservative entry (I like to use stop orders to enter trades so I don’t have to send in orders in a hurry when a signal hits.)
A good rally followed this morning. 51.78 was a good first target for the rally, it being a 50% retracement of this week’s range from high to low. This level was hit around 9:45, and the market tailed off from there.
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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