A number of markets had breakout setups for today. Often times when a market is set up for a breakout, other correlated markets have this setup concurrently, which is logical. Today there were breakout setups in the EMini S&P, NASDAQ, T Bonds, gold and crude oil futures. This often gives multiple trade opportunities in the same session; let’s look at today’s trade in the ES.
Today’s setup wasn’t the “purest”, as the market closed higher than the open and closed near the top of the daily range. (An “ideal” breakout setup doesn’t show much directional movement.) However, the strength of the market’s uptrend and the buy signal in ROC (the 3 period ROC, bottom panel of the daily chart) kept us interested in this trade – an upside breakout would give us a trade entry in the direction of the market’s trend.
EMini S&P Daily
For an upside breakout trade, our standard reference price is the previous day high. Specifically. We look to go long when the market trades above the reference price, anticipating this initial push will serve as the start of a larger move in that direction.
I generally don’t trade the stock index futures before the 8:30 AM open; I find this helps us avoid whipsaw moves and we also often see early day session retracements that give us additional opportunities for a trade entry.
The 8:30 open was 2751.00 and the market quickly dropped back below the Monday high. These two selloffs gave us the opportunity to go long- specifically, we look to buy when the market trades back above the reference price, as this is our confirmation that the market is making the move we anticipate. Notice that the 9 AM low at 2748.00 makes a double bottom with the low from 10 minutes previous. If you didn’t get these early entries, you got a third opportunity about 50 minutes later when there was another successful test of the reference price.
EMini S&P Futures
The rally took hold after this last test of the reference price support as the market moved higher over the morning. Today is a good example of why it’s often a good idea to be patient with holding breakout trades. They often create a positive feedback loop, gaining momentum as they move farther away from the initial point as more traders identify the move and either close out increasingly losing trades or enter new trades in the dominant direction.
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