FOMC meetings are a good example of times when markets may show breakout setups and subsequent breakout moves as traders will trade cautiously ahead of the meeting and then take positions after the meeting statement is released when traders then have more complete information to base trade decisions. Today’s Fed meeting was no exception to this pattern.
Around 12:30 PM CT today I sent out a note to Swing Trader’s Insight subscribers suggesting we look for breakout trade opportunities in the stock index futures, notably the eMini S&P and the eMini Dow, along with the T Bonds and crude oil futures. All these markets had shown sufficient range compression and balanced profile to make them candidates for potential breakout moves.
After the FOMC announcement at 1 PM, the stock indices, bonds and crude oil all rallied. Crude oil was able to make a small move above its previous session high (the level I suggested watching for a long side breakout trade) and a small rally followed.
In contrast, both the eMini S&P and the T Bonds were unable to move above their session highs, and both formed double tops at those levels. The double tops were strong evidence that the market wasn’t likely to push higher and raised the odds of a downside move later. Bonds retreated and then meandered for the remainder of the session and I didn’t see any trade opportunities for the rest of the afternoon.
The eMini S&P was a more likely trade opportunity as the session low of 2640.25 was relatively high, and it wouldn’t take a large move to push below it for a downside breakout trade following the failed rally. Around 2:20 PM we got the break of the session low, which triggered our short sale. This break saw strong follow through for the remainder of the session, reaching 2627.00 by the 3:15 close and then a few points lower in the aftermarket.
When I started in the futures business, one of my trading mentor’s favorite sayings about trading was “If the door isn’t over here (he would point to the left), it has to be over there (as he pointed to the right). What he meant was if a market didn’t go in the expected direction, it was likely to go the opposite way. When trading breakout setups, keeping a balanced opinion of a market’s likely direction of movement can often result in trade opportunities that you might miss if you had an opinion as to direction.
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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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