In last night’s edition of Swing Trader’s Insight I labeled the stock indices as having breakout setups for today. The three I cover (ES, NQ, and RT) had NR4 days on Wednesday as did the EMini Dow. In addition, the Dow and the Russell had doji bars yesterday, strengthening the breakout signal.
On its own, the NR4 signal isn’t a “surefire” breakout signal – I have more faith in NR7 or ID/NR4 signals. However, a breakout move today seemed logical in light of the recent sequence of days. There was a big selloff on Monday and an equally dramatic recovery rally on Tuesday.
Wednesday’s range contraction looked to be a directionless pause which was likely to resolve itself today in either further recovery or a resumption of the selloff. An early move in either direction was likely to turn into a bigger play as the day moved on and a positive feedback loop trade was created.
In this morning’s STI watch list I suggested we watch the Wednesday low of 2660.50 as the primary downside reference price, looking to go short IF the market traded below that level. This was taken out around 9:45 AM, triggering our first short sale. The market continued lower over the morning, making a session low of 2613.25 just before Noon CT.
If you wanted to be done for the day, you certainly could have turned off your screen and finished for the day. However, once in a while a breakout move ends up reasserting itself later in the session so sometimes it’s worthwhile to watch for a second opportunity later in the session.
We got that opportunity at the end of the day, as the break of the morning low led to a new wave down at the end of the session. This created a trade opportunity late in the session for traders who wanted to take it. For the rest of us, this was a good lesson of why traders shouldn’t look to fight the trend at the end of the session for a breakout day as trends rarely reverse at the end of the day.
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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