In last night’s Swing Trader’s Insight I labeled the EMini S&P as a breakout trade candidate for today. I used this call along with today’s early session pattern to ride the market higher today.
Thursday’s bar was enough in of itself to give today’s breakout setup; the inside day, range contraction and doji bar all were evidence of a market coiling up for a move. Pulling back showed more evidence of a potential breakout – Tuesday was also a breakout setup, and the Wednesday close was within 1.50 of Tuesday. Thursday gave three closes within this tight window.
Out of this setup we look for the market to make a directional breakout move; a day that sees the market move in one direction over the course of a session, showing only minor pullbacks against this move. Breakout trades often show a positive feedback loop as well as the market gains momentum as it moves farther from the initial equilibrium level.
Normally I suggest that we should stay agnostic about the direction a breakout will move, as it can be difficult to predict the direction out of a balanced pattern. I stuck to this today (I would have taken a downside breakout trade) however I especially liked the long side – the longer term trend is up and the ROC indicator was on a buy signal. Rather than use this to guess a direction, I used this to look for an early entry for a long side trade.
Normally I would use the previous day high as the primary upside breakout reference price. In this case I would normally look at the Wednesday swing high (2855.25) as a primary reference as it was a natural resistance / pivot point level. However, the combination of the uptrend and the fact that the market was well below standard breakout levels meant we might look for an earlier entry, depending on how the session started.
The 8:30 AM open was 2850.00 and made a session high 2852.75 just before 9 AM. This was just above the overnight high of 2852.25, meaning this was likely a significant level to watch. Because of this, I entered an order to go long if the market rallied above that 2852.75 session high, anticipating that this would be the trigger to start a bigger breakout rally.
We got our entry around 9:35; the initial stop loss could go below the session low. Note that the entry level then served as support until the rally started to take off around 11 AM. From there it has been a series of higher highs and higher lows through the day as the market worked higher. Today has been a good example of why it can be a good idea to trail stops rather than select profit targets, as breakout moves often continue over the course of a session.
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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