The EMini S&P futures were on the Sell Short day of the Taylor Trading Technique (TTT) cycle today. It’s been a slow session however patience has been paid as the session long downtrend has been rewarding shorts.
In last night’s Swing Trader’s Insight I labeled the EMini S&P futures as a Sell Short day after two bullish sessions last Thursday and Friday. In addition to the TTT cycle count, Friday’s high range close and the high in the ROC indicator told us to anticipate a selloff today and to look to get short if a selloff got started.
We use the previous session high as a “reference price” and watch the market’s behavior around that level. Our signal for the start of a selloff would consist of two parts. First, we look for a rally above the previous day high. (This often sucks in new buyers or squeezes out weak shorts.) Then we look for a move back below our reference price to serve as a trigger for a short sale.
In this case, the EMini futures had rallied above the previous day high before 8:30 AM open. With stock index futures I generally don’t enter trade before the 8:30 open however I consider a pre-opening move above the reference price to be a legitimate first step of the setup. It was interesting that the morning saw multiple highs at 2577.00 and those highs were lower than the session high of 2577.25 – showing selling interest and a lack of buyers up at these levels.
The market sold off after the 8:30 open, and our short sale got triggered about five minutes into the session. I like to enter these trades using preplaced stop orders, so I don’t have to try to enter orders when the market is moving quickly. If you miss the first entry, there was a small rally (made a lower high than the session high) and a second short sale signal about 30 minutes later.
The initial stop loss for this trade could go above the multiple highs at 2577.00. We put our stops here because our entry was predicated on the market having downside momentum. If it rallied and made a new high we would have decisive evidence that the downtrend was over.
Today our initial stop loss was never threatened and if you took the short, you could have looked to lower your stop when it made a lower high around 9 AM. Over the course of the session the market made lower highs and lower lows, finally making the 2562.00 low around 2:30 PM. This was the top of the first objective area that ran from the 18 Oct. high (2562.00) to the 50% retracement level at 2559.88 (see the daily chart). If you wanted to take profits and be done for the day, reaching this objective area could be a good reason to close out. On the other hand, the market is still trending lower so you could continue to trail stop losses down as the market moved lower.
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.