Stock index futures had a breakout setup for today’s trade. With yesterday being the day after Easter and the FOMC meeting starting today, yesterday’s small range and light volume weren’t a surprise.
The real question was whether traders would want to commit to a breakout move, as it would require either buying higher or selling lower. Fortunately we don’t have to decide, we can let the market make up its mind and go along for the ride. The daily chart for eMini S&P futures and last night’s Trade or Fade report are below, showing the set up.
too bad it's not so obvious ahead of time
When I say “we let the market decide where it wants to go, then go with it” I refer to price levels that if exceeded are likely to lead to a trending move for the session. I often look at the previous session high and low (as is used in Swing Trader’s Insight) as breakout price levels; I later developed Trade or Fade for an additional set of entry and exit prices.
The intraday chart below shows how the day went. I labeled yesterday’s high and the first Trade or Fade resistance level; a move over these levels was a trigger for a long entry. It traded around yesterday’s high for about four hours this morning, giving a number of opportunities for a long entry.
Trade or Fade’s long entry point was hit around 9 AM. For either entry price, the initial stop loss went under today’s session open at 1330.75 – if it traded back under the open it was likely that the market didn’t have the impetus for higher prices, so we would cut our losses and wait for another setup.
You didn’t necessarily need Trade or Fade for the entry today but it definitely helped with the exit. The first profit target at 1344.56 was hit a little before 11 AM and proved to be pretty close to the high of the session. As today’s rally put it into hew highs for the year there weren’t any old highs or lows that we could use for chart based profit targets.
Today’s trade showed the wisdom of why it pays to keep an open mind when trading. Conventional wisdom might have told you to stay out of the market today. By recognizing the setup and knowing what to do with it, we are able to trade logically and enter and exit the market when it tells us to.
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.
