In last night’s edition of Swing Trader’s Insight (STI) I labeled today as a Taylor Trading (TT) Buy day for the stock index futures. Normally we would use the previous session low as the “reference price” for a TT Buy day however in this morning’s comment I suggested we look at overnight structure to get an alternative entry.
Monday was a Taylor Trading Buy day trade for the stock indices; I wrote a blog post about that trade HERE. Yesterday’s wide range exhausted the downside momentum (Tuesday was a WR7 bar and ROC dropped to a nearly two week low) which meant we would look for a Buy day for Wednesday.
For a TT Buy day, a textbook entry is to look for an early session break below the previous day low (our “reference price”), which serves as a heads up for a potential long entry. We then look to go long when the market rallies back above the reference price, which is our signal that the momentum has reversed to upward.
However, not every session strictly follows the script. In this case, the indices I follow, EMini S&P, NASDAQ and Dow closed far enough above the session low that a drop today to the previous session low was a low probability event. As a result, in this morning’s comment for STI I said to use the overnight lows as a higher reference price. I’ll go over the EMini NASDAQ, although the others had roughly the same pattern.
For the NQ, this morning’s comment was to use the overnight low as a higher reference price. At the time I sent this morning’s mailing, the low was 7605.00, and shortly afterward it made a lower low to 7602.00. This is an example of why I don’t often trade the indices in the pre 8:30 AM market; there tend to be a lot of fake outs.
For the day session, we would look for a failed move below the overnight low to be our setup pattern for a long entry. For the June NQ, the 8:30 open was 7608.25, it dropped to a new session low of 7600.00 and then rallied. We bought when it rallied back above the overnight low, and put an initial stop loss below the 7600 session low. A strong rally followed, making a session high of 7661.00 by 8:45 AM. This was a large, volatile move in a short period of time, taking profits would have been a prudent decision.
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