In last night’s edition of Swing Trader’s Insight I labeled the soybeans as a Taylor Trading Technique (TTT) Sell Short day for today. Tuesday’s rally followed through in the overnight session, which gave us an opportunity to get short from a better level.
Tuesday saw a strong rally as the market popped out of breakout setup, closing near the high of the daily range. A breakout rally day often cuts short the Taylor Trading cycle, going directly to the Sell Short day. (Read about the TTT cycle in the STI user’s guide, request a copy below.)
For the Sell Short day of the TTT cycle we anticipate a failed rally above the previous day high, looking to short the market when it drops back below the previous high. This failed rally squeezes out weak shorts and pulls in buyers chasing the rally. When momentum turns down, the selling pressure from the weak longs helps drive prices lower.
The overnight session in grains and stock indices often acts as a distinct trading “day”, as was the case here. We could view last night as the Sell day of the TTT cycle, meaning the day session would be the sell short day. For that reason, my morning comment about July soybeans was to use the overnight high of 845-6 as the reference price for a TTT Sell Short day trade.
The 8:30 AM open was 838-6, and it rallied to a session high of 848-2 about five minutes later. The bulls ran out of steam, and it subsequently fell below the overnight high, which triggered out short sale. I like to use resting stop orders to enter these trades so I’m less likely to second guess myself when the entry comes.
So we got short around 8:40 AM, and placed the initial stop loss above the 848-2 session high. The market trended lower through the morning; the double bottom at 835-4 was a good signal to cover shorts or at least tighten up stops.
This wasn’t a home run trade (I’m a longer term bull on soybeans anyway) but it’s a good example of how the TTT can help you anticipate what a market is likely to do. This both helps you plan out trades in advance, and give you confidence to takes trades when they come, because the market is doing what you anticipated.
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