On last night’s Swing Trader’s Insight newsletter I labeled today a Taylor Technique Buy day.  Monday was a classic Sell Short day. Following three bullish days (close > open), Monday opened on the high and saw bearish price action during the day, closing solidly lower than the open.

Daily Euro Futures Chart May 4

click to enlarge

After a Sell Short day we anticipate a Buy day. A buy day often sees some early session weakness, creating the ‘excess low’ that marks the end of the selloff. We then look for a reversal and rally as the selloff ends and the rally begins.

To recognize and trade the reversal, we look for price action around a reference price.  For a Buy day, our reference price is often the previous session low.  We look for the market to trade below the low, and then buy when it reverses back above the low.

Although the previous session low is often the reference price, there will be days when we look for another significant price level.  That’s what we had today; yesterday’s low was decisively broken early last night, last Thursday’s low was the last swing low and likely support.  Whether or not the market held this support would determine whether a low and Buy day trade would develop.

The intraday chart below shows today’s price action.  The Euro never reversed back above either yesterday or last Thursday’s low, so we never bought the Euro today.  This keeps us out of a losing trade-we’re not trying to pick a bottom, we buy when the market forms a bottom and turns higher. Taylor would say this lower price action allows us to play for a better price today.

Euro currency futures intraday chart May 4

click to enlarge

On the daily STI newsletter there are days when my comment for a market will be ‘Buy day, high made first’.  Today’s action in the Euro is an example of this; a day where we have a Buy setup that is unfilled because of bearish price action. By waiting for a reversal, we’re not trying to pick a top or a bottom; we trade with the trend.  The Taylor Technique allows us to anticipate trend changes and enter trades shortly after the trend changes.

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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