On Friday I wrote about a breakout setup and trade opportunity in the EMini S&P futures (read that article HERE.). Friday’s breakout rally meant we would anticipate a Taylor Trading Technique (TTT) Sell Short day for Monday; this gave us a good follow up trade today and shows how the TTT can anticipate and capture the rhythm of market rallies and declines. This is what I mean when I write “exit breakout buys, Sell Short day” in the Swing Trader’s Insight (STI) advisory.
A normal TTT cycle consists of three sessions: a Buy day, a Sell day and a Sell Short day. This three day cycle describes a move in which a rally “uses up” its bullish momentum and rolls over to a selloff. If a market shows a regular TTT Buy day, we anticipate first a Sell day (a sideways to higher session) and then a Sell Short day on day three as the market puts in a top, then turns lower and sells off.
Friday’s intraday pattern was standard for a breakout rally day. The market opened near the session low then rallied over the course of the day to close near the session high. But while we might otherwise look for a TTT Sell day for Monday, Friday’s move meant we would skip past this and move right to anticipate a Sell Short day today.
We move directly to the Sell Short day because breakout rallies tend to “expend” the bullish momentum on the first day, often not leaving any residual upside impetus for day two. The breakout rally, in “using up” the bullish momentum, often ends up pushing the market above a “fair value” price, making it “too dear”, which creates the move of a TTT Sell Short day.
So in last night’s Swing Traders Insight the comment for the EMini S&P was “exit breakout buys, Sell Short day”. On a normal TTT Sell Short day we would anticipate a failed rally above the previous day high; this failed rally would be our trigger for the short sale opportunity we looked for.
In this morning’s note for STI I reiterated the expectation for a Sell Short day. However, as the market was trading well below the Friday high, I was looking for lower price levels for potential reference prices rather than the Friday high. The important factor for a TTT trade is the pattern, not an absolute price level, so lower prices would give us lower potential levels for trade entries.
I suggested we look at two lower prices. First, we could use the overnight high of 2578.25, as it is often useful to treat overnight trade as a discrete trading session. I also suggested we use the October 23 high of 2577.25 as it is a distinct swing high. If the market made it up to one of these levels and failed then we could have a TTT setup, provided the market sold off after the failed test.
The 8:30 AM open was 2572.25, and it rallied to a day session high of 2577.50 around 9:40 AM. This failed rally gave us the trigger for a short sale, and the market sold off to make a session low of 2565.50 around 11:15 AM.
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.
Risk Disclosure
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.
