By the Taylor Trading Technique today was a Buy day for the British Pound futures. I thought I’d use it as a chart example of figuring out where a market is in the TTT cycle.
The daily chart for June British Pound futures is below. I pointed out a few notable things on the chart to see what it has been doing. Last Thursday was a breakout day; it has the narrowest trading range of the previous seven days. Friday had a breakout day rally but it was unable to close over the previous high of the week at 1.5196.
By the normal TTT cycle Friday would have been a Sell day, and we would have been playing for a retest of Thursday’s high. However, I find that a breakout move often creates the ‘excess’ that marks the end of a move. In this case, Friday’s breakout rally was likely to be followed by a Sell Short day on Monday.
For a Sell Short day, we normally use the previous session high as the reference price. In this case that would have been Friday’s high at 1.5235. You could also have used the March 8 high at 1.5196 as the reference price, as it served as resistance Friday. In yesterday morning’s STI Watch List email I identified 1.5007 as the downside target; it was a 50% retracement of the rally off the March 1 low, and near Friday’s low of 1.5017.
The day after a Sell Short day is the Buy day. The 2 period rate of change indicator (bottom panel of the daily chart) also gave a buy signal. On a Buy day we look for an initial move under the previous session low to create the ‘excess’ low that marks the end of the decline. The subsequent rally back above that low is our buy signal.
The 10 minute chart for today shows how the session unfolded. For a purchase around 1.5010, we used an initial stop under the day’s low of 1.4970, a risk of around $250 per contract. As Jim Dalton (a prominent proponent of Market Profile) wrote in Markets in Profile: “The end of an auction offers the moment of greatest opportunity… risk & return are asymmetric at this point.”
What about profit targets? 1.5103 was a 50% retracement of the move from Friday’s high to the overnight low. The trend line off the Friday and Monday highs came in at 1.5161 and Friday’s high was 1.5198. Thursday’s high was 1.5235, which is also the 20 day EMA. With the FOMC meeting coming out in about two hours, discretion may be the better part of valor for the remainder of today’s session.
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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