In this morning’s STI watch list I wrote the following about the NASDAQ futures: “Yesterday was an inside day, so we treat today as a breakout day. Use the overnight high at 1820.00 for an upside breakout point and 1791.50 down.”
One of the tenets of the Taylor Technique is that most days see either previous session high or low exceeded on residual momentum from the previous day. This may be either continuation or the end of a swing move.
An inside day reflects a lack of commitment on the part of traders. For a ‘normal’ Taylor day we look to either the previous session high or low as a reference point; either a profit objective or the point at which we use to determine a trend change.
In contrast, when we have a breakout setup we use both the high and the low as reference points. When Taylor developed the TT, he identified inside days as days that ‘reset’ the TT count. A move above or below the previous session high or below the previous session low was a ’go with’ move, looking for the market to continue in the direction of the breakout. Over time I (and others) have broadened the criteria for recognizing and trading breakout setups, but the principles remain the same.
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By a strict Taylor count today was a Sell day. On a Sell day we use the previous (Buy day) high as the price objective for a rally. Yesterday’s inside day meant we were looking for a breakout move. The TT would have us looking at yesterday’s low at 1787.75 as the downside breakout point. I drew the two little trend lines connecting the past two day’s highs and lows, forming a little triangle. I assumed that a break of either of these two little trend lines as a potential early entry point for the breakout.
The 10 minute chart below shows today’s action; I also added lines at the past two session lows to show the lower breakout points. For an early entry at the trend line (at 1791.75), I viewed Tuesday’s low at 1783.75 to be a first profit target and a breakout point for additional sales.
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For stop losses for this position I started at yesterday’s close of 1809.00; that was a risk of about $350 per contract; lowering it as the market sold off. The first profit target was Tuesday’s low at 1783.75. From there I had 1774.25; a 50% retracement of the rally from the 11/3 low. The next downside objective is the 100 DMA; it comes in at 1768.37 today. Past today, that market’s (in) ability to regain the 1774 Fib level is important to near term direction.
The Taylor Technique can help your trading because you don’t have to try to predict where the market will go. By recognizing its simple patterns, you let the market itself tell you where it will go, and trade in rhythm with it.
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.
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