There are times where we may miss an ideal entry for a Taylor Trading Technique – the violation and reversal of either the previous day high or low has already come and gone, or a market never reaches the reference price. Even if we don’t have a textbook TTT setup, there are times where the bias of a TTT day can give you confidence to enter a trade in the direction of the days bias.
Below is the daily chart for the eMini S&P futures. Friday’s bar gave a breakout setup for Tuesday; this resulted in a good breakout rally yesterday.
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If yesterday was the Buy day in the TTT cycle, we generally would anticipate a Sell day to follow – a push up to the previous day high to sell out of the previous day’s long positions, but we expect prices to remain relatively high to set up a Sell Short day in the following session.
If this were a “normal” TT cycle today would be a Sell day, but we anticipated a Sell Short day today. This is because of yesterday’s breakout rally. Buy days and Sell short days occur because market swings produce “excess” highs and lows, as momentum pushes the market to be “over” or “under” valued (these are qualitative, not quantitative statements. Markets don’t have an objective “value”; value is wherever the market prices itself at a given time. Still, the idea of over/under valued can help understand market action.)
As breakout moves can move a market a long way in a short amount of time, they are likely to produce the over or under valued condition that marks the end of a move. Thus, in the session following a breakout day rally we should anticipate a Sell short day (or a Buy day following a breakout sale).
Thus I came into today looking for a Sell Short day. The intraday chart below shows today’s action. The standard Sell Short day reference price is 1345.75, but we haven’t see that since around 3 AM Chicago time, when I was still sound asleep. By the time I got to the office at 7 AM they made an overnight session low at 1337.50 and then rebounded before the 8:30 AM stock exchange open.
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Looking back up at the daily chart, I drew the red trend line connecting the recent lows. This trend line came in a 1337 today, which lined up with the previous session low. I looked to get short when that trend line was broken, expecting that the selloff would continue after the market moved under it. I especially liked this trade because it could have a reasonable stop, just over the last swing high and 20 period EMA at 1341.00. The break for the short entry came at 9 AM with the release of the weak ISM numbers.
Profit targets 1331 (the 20 period EMA on the daily) then yesterday’s low at 1328.25. 1325.00 is a 50% retracement of the rally off the 25 May low; I’ll watch that as a pivot point for extending the selloff.
Although the Taylor Trading Technique is likely of limited use to ultra-short term day traders (it likely won’t tell you what to do at 1:30 PM when you’re on your fifth trade of the day) I find the directional bias aspect of the TTT can be of help with entries and exits for many traders.
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.
