By the Taylor Trading Technique there were two potential scenarios for the eMini S&P futures today. First, it could be a breakout setup day, as yesterday had the narrowest trading range of the previous four sessions (an NR4 day). This fit with yesterday’s choppy back and forth action-what Linda Raschke would call a “Z day”.
The other possibility was that today was a Buy day. As the daily chart shows (below), Tuesday and Wednesday had bearish action-closes lower than the open. After two days of bearish action we should be anticipating a Buy day-early weakness, then a reversal and rally.
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The key to buying on a Buy day is to wait for the reversal. Until we get the reversal, we assume the trend is down.
I bring this up because of a conversation I had with a new Swing Trader’s Insight subscriber the other day. He was asking me about a Buy day signal in soybeans on Monday. He bought early in the session, only to see the market continue to fall and close weak.
Maybe it’s a weakness in terminology, or maybe he just didn’t understand the methodology well enough. We need to see the reversal before we get long. The reversal is our evidence that a low has been struck. Until it reverses, we assume the earlier trend is still in force.
Coming back to today’s action in the S&P, a 10 minute chart for the eMini S&P is below. The red line is at Wednesday’s high; it has not been challenged this morning, so the classic entry point remains unfilled.
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Given that we have a Buy day, we still can be looking for another pattern as evidence for a reversal and long entry. So far we haven’t seen that sign, as we have seen a series of lower highs today. Until one of those swing highs gets taken out, I wouldn’t consider buying.
The Taylor Trading Technique is often wrongly characterized as a method to buy bottoms and sell tops. In practice, it’s really a system to identify and enter markets soon after a top or bottom is made. Understanding the distinction is critical to using Taylor’s technique correctly.
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.
