The Taylor Trading Technique does a good job of highlighting how markets fool us into doing wrong thing at the wrong time. Today’s Buy day signal in the S&P futures was a good example of this.
The daily chart for the September eMini S&P futures is below. Yesterday had bearish price action-it had the widest trading range of the previous seven days and it closed at the low of the session. This made it likely that it was likely to see downside follow through early in the session (residual bearish momentum). It also made it more likely that it would create the ‘excess’ low that marks the low and turn around of a Buy day.
But will the low hold?
On a Buy day the standard “reference price” is the previous session low. We anticipate a move below the previous session low, and then buy when the market rallies back above the reference price. Today, in addition to the previous session low, we anticipated a possible retest of last week’s low in the 1037 area as yesterday’s low was so close. A test of 1037 would also be likely to trap more shorts in an ‘excess low’.
The 15 minute chart for today (below) shows today’s activity. The test of last week’s low occurred early last night, and much of the session was spent under yesterday’s low. The push above yesterday’s low (around 8:45) was our trigger to go long.
Monday low was the reference price
Today’s structure in the S&Ps was a good example of a market creating the ‘excess’ that gets traders to do the wrong thing at the wrong time. The Taylor Trading Technique teaches you to anticipate these ‘excesses’. In doing so, you are better able to trade in rhythm with the markets, anticipating and not reacting.
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.
