In last night’s Swing Trader’s Insight I noted had gold futures for today as Monday saw range contraction (NR4) and was also a doji bar. The breakout setup told us to look for a potential large move in one direction or the other; we would seek to enter a trade in the direction of the move early in the session. The gold chart was interesting because it had spent the past three sessions testing the 200 day SMA, which has been a significant level to determine trend.
Much of the time we look at the previous day high and low as our reference prices (entry trigger levels) for breakout trades as they show the ultimate support and resistance from the previous session. In this case we wanted to use the low from last Friday (1273.10 basis Feb. futures) as it was the lowest low of the past few days. Trading doesn’t have to be about finding something “secret” or “things THEY don’t want you to know”, it can be about doing the more obvious things in a consistent and logical matter. You can’t (nor do you need to) outsmart the market to be successful.
So we know to look for a potential breakout trade in gold today, specifically looking to short Feb. gold futures if / when they broke below the Friday low of 1273.10. I like to use stop orders to enter these trades, in this case placing a sell stop a few ticks below the reference price. Using resting orders helps me preplan my trades and saves me from second guessing myself or having to hurriedly place orders in a fast moving market. For this trade we were stopped into shorts a little after 8 AM CT.
As with the entry orders, I also like to plan my stop losses before I enter into a trade whenever possible. If you use a trading platform like our DT Pro that has the OSO (Order Sends Order) feature, you can have the platform automatically place your stop loss as soon as you get stopped into a trade. This doesn’t completely take the place of watching your trades but it’s another part of being an organized and logical trader, which can’t but help your results.
For this trade the initial stop loss could go above the 8 AM high of 1276.60. For breakout trades I like to use a stop loss of $200 to $400 per contract; I like to use a previous high or low that if hit, would signal a likely intraday trend change. Today gold made a stereotypical breakout day patter as it made lower highs and lower lows during the morning. If possible, I like to try to hold on to breakout trades for a bit, as the one way pattern they often seen creates a positive feedback loop that increases momentum in the direction of movement.
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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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