In today’s Swing Trader’s Insight I suggested we look to buy the eMini S&P futures. They were on the Buy day of the Taylor Trading Technique (TTT) cycle; this gave us both a directional bias to anticipate today as well as a specific entry setup to look for.
Monday was the Sell Short day of the TTT cycle, following Friday’s NR7 day rally at the end of the trading week. Monday had an identically small range to Friday however Monday’s bearish pattern (open higher than close, close in the bottom 10% of the daily range) indicated we might look for a Taylor Trading Buy day for Tuesday.
We generally anticipate a Taylor Trading Buy day when the previous session has a bearish pattern as described above. The bearish movement of the first day leads some traders to look for more downside on day two. However, other traders look for a rally as the market fools the later sellers and takes back the previous day loss. The rally is what the TTT tells us to anticipate on day two, and we look to go long when we see the rally start.
The setup for a textbook TTT Buy day starts with downside follow through, below the low of the previous session. This move lower pulls in late short sellers and gets some weak longs to sell out. However, this selloff doesn’t have the momentum to continue lower; as the selling dries up the market begins to move higher. The new weak short sellers are mostly holding losing trades as the market moves above the previous day; this increases the upside momentum and serves as the trigger for the TTT Buy day entry.
For this trade, the eMini S&P worked lower overnight, making the session low about 30 minutes before the stock market open (when I normally look to start to take stock index trades). This was the selling tail of Monday’s down move; the market started moving higher into the 8:30 AM open.
The Monday low was taken out around 8:50 AM, triggering our long entry. The initial stop loss would go below the session low of 2789.75 or he day session low of 2790.75. The market trended higher over the morning, the standard pattern for a breakout day rally (NR7 days on Friday and Monday). We trailed stops as the market rallied; I would be watching Monday’s high as a support / stop loss point for the remainder of positions.
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