I hope this doesn’t muddy the waters for Trade or Fade followers, but I had a perceptive follower ask be about today’s strategy for the eMini S&P futures, and I thought I’d run through this morning’s thought process.
In this morning’s update (see here) I characterized the eMini S&P futures as being in a breakout setup again today. Monday had a breakout setup, as Friday had the narrowest trading range of the previous seven days and was a doji bar. A breakout setup doesn’t always guarantee the payoff of a breakout trade. Such was the case yesterday, as Monday’s structure didn’t show strong directional movement, and it closed in the middle of Friday’s range.
Because of this, I viewed today as an “unresolved” breakout setup, so I anticipated today would see the range expansion we would expect to see on a breakout day. The daily chart of the September eMini S&P futures and today’s Trade or Fade report show what we were looking for today.
Breakout came a day late
Today's ToF levels
By the time I got to the office this morning (around 7 AM Chicago time) the market was solidly under the two chart breakout points at the lows of Friday and Monday. It was trading around the first Trade or Fade support at 1056.56; this was the ToF short entry point for today.
From an entry at S-1, the market sold off to a panic low as the existing home sales report came out. The second ToF support at 1047.63 was the place to take profits.
higher low the second time down
If you didn’t cover shorts on the selloff through S-2, I recommended trailing stops to that point. That was a real windfall move on the spike low, and breakout trades generally don’t have any long term predictive abilities. I wouldn’t have taken the short at the 10:30 move back up then down through S-1, as the previous break was likely the flush we expect for a breakout move. The higher low on the second selloff is bearing that out.
For more information on trading breakouts in futures, you can get more information on my Trade or Fade advisory here. For an in depth discussion of breakout trading, get a copy of my Breakout Futures Trading Method book here.
The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
