Yesterday I looked at the Taylor technique trade for the T Bond futures (read here). I covered why yesterday was a Buy day, and why I don’t normally carry Taylor trades home overnight. As yesterday ended with an inside day, I think that was a good decision; inside days are one indicator for a breakout setup
The Taylor Technique is normally about anticipating a market’s directional bias, breakout setups indicate indecision on the part of traders, and it’s difficult to know the likely direction of a breakout before it occurs. I look at range and/or volatility contraction patterns for breakout setups-narrow range days, inside days, dojis.
Although breakout setups don’t help you anticipate direction, they are valuable patterns to recognize. Volatility tends to be cyclical; a period of low volatility often yields an expansion in volatility (and vice versa). Thus, the range (and volatility) contraction of breakout setups often are followed up by a volatility expansion and a directional move.
In the T Bond futures, yesterday was a breakout setup for today’s trade. On a breakout setup day, we use the previous session high and low as our TT reference prices, but in a different way. On a Buy or Sell Short day we look for a thrust, then a reversal through either the previous session high or low to mark a trend reversal. With a breakout setup we look for a move beyond the previous session high or low to be the springboard for a new trend.
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The intraday chart for June T Bond futures below shows how to trade these breakout setups. The 117-15 level was hit at about 5:45 AM. This was not an entry signal; the market needs to exceed the previous session high or low. Those points were resistance and support in the previous session; I continue to view them as touch until they are taken out.
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The long entry did come around 7:30 as 117-15 was taken out, and it rallied to an intraday high of 117-26. Around 9 AM is pulled back to a low of 117-16, testing the breakout point. The next leg up reached objectives at the 4/22 high of 117-29 and the 3/8 (also 2010) high of 118-12. At this point I’d place stop losses under the last intraday low at 118-01. I’d be inclined to sell out long positions by the end of the day unless it can close above the 118-12 high. A new high close for they year could signal a higher timeframe breakout.
Taylor developed his ‘book method’ (the Taylor Technique) as a swing trading system, designed to take advantage of one to two day moves in the markets. Given the shorter trading hours and slower dissemination or market information, it took longer for his moves to develop. The rise of around the clock trading and the ability of the internet to allow broader access to market information have shortened up trading timeframes. By following Taylor’s methods but being quicker to close trades, traders can reduce their market risk without sacrificing much return.
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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