The markets have been nothing if not choppy lately-up one day, down the next. To some, it seems like there’s been no rhyme or reason lately. It’s periods like this that the Taylor Technique can really shine.
Below is a daily chart of the December Euro FX futures From earlier posts, you should know the Taylor Technique has three phases-a Buy day, a Sell day, and a Sell Short day. In an idealized version, a market would go through these phase on three consecutive days, going through this cycle over and over. In practice, market movements usually aren’t that picture perfect, but the TT still gives you valuable insights as to a markets bias on a given day, a framework to anticipate the swings, and a method to trade these swings.
Is this rally different?
Friday was the third day with negative (high to low intraday) price action. While this is longer than you’d generally see, this price action told us to hold off on going long, unless you wanted to buy on Friday, anticipating a buy day rally today. As I showed on Friday, the euro was finding support at the 1.4836 Fibonacci retracement level; as intraday moves below it were rejected (buying pressure under the “excess” low stopped the selloff and led to a rally).
So, today was a Buy day for the Euro. It has exhibited typical Buy day action, opening on the low of the session, and then rallying. Early on it took out the midpoint of the last downswing at 1.4823. More importantly, it took out the trend line across the swing highs, which resistance came in at 1.4960 today. That tells us that this rally may be different than the past upswings, which terminated at the trend line.
On the other hand, it may not end that differently. In the bottom panel of the chart is a rate of change indicator (ROC) set to 2 periods. The 2 period ROC does a good job of highlighting the “excesses” that occur at the end of a swing-points where it’s likely one swing will end and another will likely start in the other direction. I drew a blue horizontal line at 1.5015-last week’s high, and the Sell day high from two swings’ previous.
I circled the last four highs for ROC; note that they all ended in a down swing, if not the following day, the day after. Is this telling us that tomorrow will definitively be a down day? No, but it does tell us to anticipate a down swing soon and trade accordingly.
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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