On Monday I wrote about a Taylor Trading Buy day in soybeans (read that HERE). Soybeans consolidated on Tuesday (in spite of a USDA report); it was an inside day and an NR4. These patterns told us to look for a breakout, directional move for Wednesday.
When a market has a breakout setup, we look for an early session move past close in support or resistance to serve as a springboard to a larger move in that direction as a positive feedback loop develops. (The move away from an equilibrium point sees increasing momentum the farther it moves from the initial level.)
The most logical levels to look for breakout triggers are the previous session’s high and low – they are the prices at which traders felt the market got “too cheap” or “too dear”. A move past these levels is a tipoff that a different type move may be starting.
So for July soybeans we used the Tuesday high and low as our first trigger levels. Conservative traders could use the Monday high and low as they served as the high and low for the week. Beans stayed within these levels for the Tuesday night session,
The day session open was 862-2, and it rallied above both levels within the first five minutes of the session, which triggered long entries. We could place out initial stop loss below the day session low and open of 862-2.
Soybeans went back to retest the Monday high about a half hour into the session, then they took off as the newest weather forecasts showed continued wet weather to hamper soybean planting.
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