In this morning’s note for Swing Trader’s Insight, my comment for the EMini S&P was “It has a breakout setup (ID, NR4). On the downside use the overnight low of 2560.50.” Normally the Taylor Trading Technique (TTT) would have us anticipate a different pattern today however the breakout setup overrode it, giving us a good trade this morning.
Tuesday was a bullish bar (close higher than the open), reflecting the Taylor Trading Buy day we anticipated for Tuesday. This would usually mean that today would be a TTT Sell day, which calls for a rally to the previous day high. However Tuesday also was an inside day and an NR4, which told us to anticipate a potential breakout move today. For a breakout setup day we look for an early session move beyond close in support or resistance (often the previous day high or low) to serve as a springboard to a larger move in that direction.
By the time I was writing this morning’s STI note, the market had already moved below the Tuesday low, and was closer to the low end of the session range. This added to conviction that we could see a breakout trade, probably to the downside (although I would have taken an upside breakout trade as well if it occurred.)
I normally trade stock index futures during the day session, from 8:30 AM CT on, and I write my morning note with that in mind. When I said to “use the overnight low of 2560.50” I meant I would go short the market when it moved below the overnight low –that would be our signal that a larger selloff was anticipated.
The 8:30 AM open was 2563.75, and the market quickly sold off from there, triggering the short sale around 8:50 AM. I like to use resting stop loss orders to enter these trades so I don’t have to hurriedly enter orders into a fast moving market. Having resting orders to enter helps me feel I’m in control of my trading, and helps me come up with the initial stop loss for the trade ahead of time. That way I can have my stop loss entered as soon as I enter a trade. (I like to use our platforms Order Sends Order feature for stop losses; it makes for even less work.)
For this trade, the initial stop loss could go above the Day session high of 2565.00 or the session high of 2566.25; this was placed as soon as we got stopped into the trade. The market sold off over the morning; on the intraday chart I drew the marron lines to give an idea as to where you might move stops lower. About 11:20 AM the market successfully tested last week’s low; this could have been a signal to cover shorts and book profits.
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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