This post is for Joesph G., who asked me what to do in the S&P futures today.
I labeled today a Sell day for the eMini S&P futures, according to the Taylor Trading Technique. The TTT consists of a three day market cycle. George Douglas Taylor wrote this in terms of markets being manipulated by “big money insiders” who manipulate markets lower to buy cheap then engineer a rally to sell out at higher prices. A major effect of this “manipulation” is to get less savvy traders to do the wrong thing at the wrong time-to sell at the bottom and buy at the top. Taylor developed the TTT to trade in rhythm with the “insiders”.
I’m not advocating Taylor’s conspiracy theory of market analysis. Whether you want to believe that side of the TTT or not, his method still has merit because the TTT is a good framework for understanding market psychology. I’m agnostic on this part of the TTT, but it is sometimes easier to understand Taylor’s method if you think of trading in terms of manipulation.
The Sell day is most confusing day in the TTT cycle. The Sell day occurs after the previous, Buy day. On the Buy day the insiders engineer the last of the market decline, then get long as the selling dries up and the market begins to rally. They go home with these long positions, looking for upside follow through in the following session. These positions are sold out on the (next) Sell day.
The third day is the Sell Short day. On the Sell Short day a short term top is engineered to sell the Market short. So the trick on the (previous) Sell day is to hold the market up so they can sell out long positions, but not to push it up too far-that’s for the Sell Short day.
Every day in the TTT has a reference price, a price used to analyze market action. On a Sell day the reference price is the previous (Buy) day high; it is the objective to sell out of the long positions purchased on the previous day. Carrying the long position to the next day lets you sell out at the high of the day, you’re just doing it a day later.
I tend to not carry trades home overnight. Markets tend to move enough that you can often make ‘enough’ money on the day of entry, and by getting out you avoid overnight risk. Not losing money is more important than making money. Additionally, many markets have enough day traders that a rally will see profit taking at the end of a session, pushing it off the highs of the day.
As such, this raises the question about what to do on a Sell day if you don’t have longs to sell out. As the Sell day objective is the previous session high, we can look to buy on a Sell day, anticipating a rally to the Buy day high.
The daily chart of the September eMini S&P is below. Yesterday was the Buy day for S&Ps. A short term bottom was put in, the market rallied, then closed off the high of the day on late day profit taking. Today’s Sell day trade was to get long overnight, looking to take profits at yesterday’s high of 1087.50. An overnight rally took it back up there, allowing you to take profits. As the TTT has one trade per day, that was it for Taylor trading. If you wanted to continue to trade you could have used another system.
Buying on a Sell day
This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit 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.
