Taylor Trading Technique

[elovemer 10]

...another issue.... for me .... is that Taylor said not to skip days which are holidays and weekends....

... as part of the count....

 

.... if i understand it .... this means that if friday is a buy day .... then saturday is "sell day" ... and sunday would be "short sale day" .... making monday a buy day again....

 

?????

[HAKUNA 10]

Think only those days on which markets are open are to be counted IMO

[BlowFish 10]

... as others have stated here.... even if your count differs .... as long as you follow Taylor's rules.... you will be ok.....

 

... nice job everyone.... still learning here....

 

One of the first things that I noticed with Taylors' work was that he seemed to have a firm grasp of price action or the 'tape' as he refers to it.

[HAKUNA 10]

If you are referring to price/vol (not to DOM or time/sales), you bet Taylor had a solid grasp. Lots of threads are devoted to reading this against support/resistance etc which is fine, however in realtime it does pose problems ie. which is the genuine s/r, which one is going to hold, is price forming its own intraday s/r etc but with Taylor's method at least you are armed with some sort of plan, various scenarios which are likely to unfold, what to look for, where to look and at what price level etc and then follow the rules to capture a reasonable chunk of the main trend. that's it , no need to sit there and sweat it out whole day.

Certainly won't have to engage in esoteric/cosmic discussions on "those who have this belief and those who have that belief or thou shall or thou shall not etc ";)

[WHY? 16]

Actually, he said right the opposite. You don't count holidays or weekends.

 

"The book is always kept in this order, never change the continuity and there are no lines left open for Sundays or Holidays, the market is considered as a series of continuous sessions without a break." P 15 The Taylor Trading Technique

 

What Taylor mean't by the above was that in his book he didn't have a blank line for Holidays...or days the market was closed. He totally ignored such days as if they didn't exist. His book was made up of as if the market was continuous with no interuptions of holidays or days the market was closed.

Edited February 5, 2009 by WHY?

[WHY? 16]

Taylor would have used classical tape reading (price/vol). That is why VSA could be useful to coordinate with Taylors method.

[elovemer 10]

.... got a possible low made first today thursday.... for the long entry...

.... low of tuesday held..... which was my middle day....

 

.... if this holds.... then the play is to hold for a large gain to close out same day.....today

.....or hold to close out monday for a high made first.... and a short

 

...if it does not hold..... then the play is to look for a long entry on buying day low violation on friday.....which would be a lower percentage play.....

...edit... we all have different counts... that's ok...

Edited February 5, 2009 by elovemer

[WHY? 16]

.... got a possible low made first today thursday.... for the long entry...

Good job Elovemer! Nice Taylor play. I will have some more comments on todays price action later on tonight as I have other things to do today. Again, general downtrend...going long using Taylors rules...bucking the the longer term trend and making money. Why? Because of these cycles and the rules that apply to each cycle. Today was obviousley a failure to penetrate. What does one do in such a case? The answers are to be found in Taylors book. I will make more comments tonight..gotta run.

[elovemer 10]

....thank you WHY .... :0)

... this gain was too fast and also large.... so it may be closed out same day.... to lock in the gain .......

... as Taylor warns.... these kinds of gains are often given back partially or reversed..

... up to the trader's discretion.....

.... same day means.... before the close.....up to trader....

..... edit.... don't mean to sound like i know what i am doing.... just taking from Taylor....

Good job Elovemer! Nice Taylor play..

[richbois 10]

Nice job elovemer

 

In my book today was a SS day. Yesterday we had a good sell off and the momentum continued today. The markets gapped down tried to rally just to reverse and go test the Buy day lows. We normally should not long on SS day, with just a few exceptions. This trade is one that often works.

 

We opened at 822.5 and only rallied to 825.50. The Buy day low was at 816 on 24 hour session and 818 on Day session. So at this point it did give us a Positive 3 Day Rally, however it was well below the average of 38 points.

 

We have a cluster of 3 fibs at 817 to 818 area and the MTP DP. The Buy day low at 816-818. Again we had strong support in that area.

 

A long could have been taken at 818.25 area with a stop just below the day low of 816.75. A low risk trade.

 

The market rallied and never looked back until we got close to the previous day high. We also know from the report that the average spread/range for today is 33.32 points. Therefore an exit at 25 to 30 point profit would have been more than acceptable.

 

That is my take on today.

[elovemer 10]

.... thanks RICH .... i think this thread is getting better and better..... let's keep it going...

...... one comment for those who have trouble with Taylor's writing style.....

...... it helps to read it a few times at least.... before it starts to sink in.....

..... i had the idea to edit Taylor's paper and post it here... but i have not gotten round to it.... sorry for that....

.... by my cycle... a short may be taken on monday on a high made first... preferably with a penetration of friday's high..... assuming that friday goes well

.... yesterday's action did not quite reach the top of the new upwards 30min channel....

 

... thursday's globex low reached the low of my middle day ..... rather than only going as low as the previous day's (wednesday) low (Taylor's normal buy point).... and the last high was not broken....yet...

Nice job elovemer

.

[WHY? 16]

I would like to make some comments here concerning how Taylor would have seen the price action today by Richbois count being an SS day. Finally, what he most likely would have done. Today was a failure to penetrate early in the session. However there was an immediate decline so why not short this decline?? Taylor says you have to recognize such action and trade on it even though it is a difficult trade to make many times it is very profitable. The key is knowing when to put out the short sell. This requires some tape reading skills. But in this case one would NOT short on 2-5-09. Why?

 

First, I take a few quotes out of his book concerning failures to penetrate the objective.

 

 

"In the beginning it might be well to study these failures to penetrate and the results of them before buying or short selling but you have got to recognize this action and trade on it, for while it is a most difficult ‘play’, at the same time many of the most profitable moves take place from failures to penetrate at both tops and bottoms. The failures to penetrate Buying or Selling Objectives are not exceptions to our method of trading, for a little study of the past movements of stocks and commodity futures will reveal that this action takes place approximately 40% of the time on an average, at either of these points, therefore, this movement is a very definite part of the method as a whole."

 

"When a stock makes a high FIRST on a Selling Day with a penetration of the Buying Day High, then reacts and is selling nearer the low of the day at the close, the indications are for a lower opening on the Short Sale Day. Should the lower opening occur, after the decline the stock or future will make an attempt to rally, in most cases, and this rally will penetrate the—High of Selling Day—if the immediate trend is higher, however, should the rally fail to reach this Objective and at the top of this rally the activity dies out and the trading narrows down to a few transactions at about the same price, then begins to ‘sell off’, we would ‘put out’ a short sale on this declining trend and J-U-S-T as it starts."

Quotes from p 46 The Taylor Trading Technique.

 

Now a quote about price action on an SS day

 

"We try to make all short sales on the high made FIRST on penetrations of—Selling Day Highs—‘This is the most favorable action for your play’—we would not ‘put out’ a short sale where the stock or future opened down and declined future, without a rally, for this action would carry the implications that rally, should it start later in the session, may cause the closing price to be up near the high of the day and this would be making the high LAST on a Short Sale Day, indicating a 46 future rally, and an up-opening but where the stock opened at the same price as the previous close and declined early in the session and then rallied higher than the opening price or for a penetration of the Selling Day High—we would ‘put out’ a short sale just as this rally began to exhaust itself after the penetration. This action is not as favorable to our trade as the above." P 39 The Taylor Trading Technique.

 

In summary, when there was no decline followed by a rally that failed to penetrate it is best to pass by the short. While one "could" have shorted and come out ok today in many cases one would get caught in the cross currents. Thus Taylor would have probably passed by shorting today right after the open.

 

Now taking the count as Elovemer did it was a buy day. First, some Taylor quotes from his book The Taylor Trading Technique

 

"The Short Sale Day Low is our point to watch and we watch for it to be reached or for the price to sell under this point, since this is where we buy our long stock." p28

 

Since today was a buy day by Elovemer count then yesterday 2-4-09 was an SS day. It is very important to watch the close oin the SS day to judge where you will probably be buying your long at on the next day. In this case the low close on the SS day 2-04-09 indicated a further decline on the next day 2-5. So one wouold be expecting to buy probably go long on a lower low than the previous days low made on 2-4.

 

"Now, we go back to the close of the Short Sale Day and we find that it was a ‘flat’ closing, then from this indication we expect a lower opening on the Buying Day and so far this would cause the low to be made FIRST and is a stronger indication when made early in the session that a rally would start from this low and hold the gains for a strong closing" p28

 

"On a Buying Day when the stock rallies from the low and the gain in points is sufficiently large, we sell out on the same day."p27

 

"The Buying Day—for our long stock provided the decline ends at or near this low but we can with reasonable certainty figure whether this low will be our buying ‘spot’ or if we may not expect further concessions to buy on and we get this indication from the way the stock closes on the Short Sale Day. We get this indication by watching the close and whether prices are up or down, that is down from the high of day or up from the low of day, weak or strong. Remember, we are watching the prices on a Short Sale Day trying to anticipate the coming point at which we can buy or go ‘long’" p 27

 

What would Taylor have done on 2-5-09 if the count said it was a buying day? First, he would have taken note of the close on the previous day (ss day) and seeing it close weak he would have expected the decline to continue on down after the open on 2-5. Therefore, he would have waited and as the tape indicated the decline was stopping he would have went long. Within an hour or so of the opening he would have been long and probably flat by the close today 2-5 with a good gain.

Edited February 6, 2009 by WHY?

[WHY? 16]

Hope my previouis post points out how Taylor would have traded and makes things a little clearer.

Edited February 6, 2009 by WHY?

[monad 10]

Excellent analysis Richbois and WHY? once again highlights what you guys pointed out earlier regarding handling different days as identified per your own book and sticking to the rules as laid out by Taylor.

 

I suppose in this day and age , we have to adopt to conditions intraday, price action on the SS day (2/05) within first 60min after a gap down clearly suggested buying pressure coming in, besides the fib levels and MTP DP mentioned by Richbois, there was also the daily Pivot Support and the support to the left provided by Low of previous BUY day and a zone going back to 15th Jan, so there was a lot going for a long trade.

 

Ofcourse this would be going against Taylor's rules for a SS day and the trade could have been stopped out depending on how the trade is managed. Use of trendlines on lower time frames with price/vol would certainly help in such instances.

 

Uncertainly is always there, same would have applied to the scenario if it was taken as a Buy day and long trade taken with the Low made first criteria.

[elovemer 10]

.... yesterday the high close indicated possible continuation today....

.... a high close today could indicate a penetration on monday for the short.....

.... high.... means a close near the high rather than near the low.....

........ assuming that friday goes well.

[Shamal 11]

WHY?

 

what do you make of the market behavior on Friday 6th Feb, a Buy day, guess the 3 scenarios you outlined in earlier post for a Buy Day would not apply i.e sell on test of high of SS day etc.

[elovemer 10]

.... friday went well.... with a close near the high on my middle day....

... so a penetration on monday for a short is suggested....

.... i could be wrong about 876 not being broken on this 3 day cycle....

... the high was 75% level of upwards 30min channel....

... top of channel would be around 885

.... yesterday the high close indicated possible continuation today....

.... a high close today could indicate a penetration on monday for the short.....

.... high.... means a close near the high rather than near the low.....

[richbois 10]

Friday was a Buy day. The concerns mentioned in Thursday night's email to subscribers, that the bullish momentum could produce just a small decline for the Buy day, ended up materializing. TVGR took effect and the markets rallied all day. I don't like picking tops on TVGR Buy days but we had numerous fibs at 868.50-869 and if we add the average range of 33 points expected for Friday.

The low was 836 + 33 = 869. That level ended up good for some quick short scalps but not based on what Taylor would have done.

[WHY? 16]

WHY?

 

what do you make of the market behavior on Friday 6th Feb, a Buy day, guess the 3 scenarios you outlined in earlier post for a Buy Day would not apply i.e sell on test of high of SS day etc.

 

Shamal,

 

What happened on Friday 2/6/09 is what Taylor calls a Decline Zero. He also say that a decline zero usually means higher prices for a day or so or even longer. He also says that all decline zero's are also what he called an HB or higher bottoms and that higher bottoms are usually profitable. Taylor was always trying to anticipate the markets next move. In this case, the hint of a higher bottom to come was the high being made last (or after the low) on the previous day i.e. on 2/5/09 (the SS day) In the pre market hours for 2/6one could see the price moving up as one awaited the opening on 2/6. All this was followed by a gap up open (regular session) on 2/06/09 that never got filled on a retracement. Both of these indicated very bullish. So how does one trade in such a case?

 

Well, first of all it is not the IDEAL buy day in terms of a normal buy day activity. Nor is it a LESS than ideal buy day. In fact it is what I would call a SUPER buy day. All the marks were there for a very bullish move. The big problem here is that it would take some really good tape reading skills to determine if one should go long on this HB made on a gap up open that never got filled. Odds favor that such a gap would see some retracement within first hour of the normal session. Since it didnt that was a further indication to go long as we were seeing a bullish day. Even if one had waited until 11:30 or noon before deciding to go long on the HB it still would have been profitable by the end of the day. The high close on 2/6/09 further indicates more bullish activity. As Taylor says decline zero's and HB's are usually profitable and the trend up will usually continue for another session or two and sometimes more. I would expect to see some more trend up on the next trading session especially if it breaks thru 876 on the next trading session.

 

Taylor allowed going long on decline zero's or HB's. However, these opportunities to go long on a buying day need confirmation before taking a position and the confirmation can only happen by allowing some time to pass in the session. Gaps up should fill pretty quickly. If not, think bullish. HBs that are way off the previous days lows (i.e. the SS day low) that hold on intraday declines indicates support. But one does have to wait for confirmation. At least give it time. At the very minimum 11:30 to noon and preferably wait until the last hour or two of trading.

[WHY? 16]

I might add that just as a decline zero indicates higher prices for the next session or two a rally zero indicates LOWER nearby prices. All of this is in Taylors book.

 

A decline zero is simply when the low of the buy day stays ABOVE the low of the previous day i.e. the SS day.

 

A rally zero is when the high of the sell day (the 2nd day in the cycle) stays BELOW the low of the previous day (i.e. the buy day). This creates what Taylor calls a BV or buying day violation and it means lower nearby prices but also means a place to take a long trade for a quick profit. However, strict rules must be followed to make this long trade and to be successful in it.

[WHY? 16]

I made a mistake in my typing in post #420 where I typed:

 

A decline zero is simply when the low of the buy day stays ABOVE the low of the previous day i.e. the SS day.

 

That should read:

 

A decline zero is simply when the low of the buy day stays ABOVE the high of the previous day i.e. the SS day.

 

Sorry about that. Hope I didnt confuse too many folks. I was tired.

[WHY? 16]

Sometimes you can take a Taylor statement and reverse it and get an additonal gem out of it that isn't in his original book. For instance p62 1st col last paragraph (in the pdf form of the book) or page 63.. 2nd col first paragraph (of the written book) says;

 

“On a Buying Day when a stock or future shows no tendency to rally and looks like it will close ‘flat’, that is, the low and close at the same price, it usually goes lower” The Taylor Trading Technique

 

Now turn that around and make that say: On a buying day when a stock or future shows no tendency to decline and looks like it will close high, that is, the high and the close at the same price, usually it will go higher.

 

This is what happened on Friday 2-6-09 in the S&P and caused a zero decline and a HB and was a good place to go long AFTER some confirmation.

[richbois 10]

I made a mistake in my typing in post #420 where I typed:

 

A decline zero is simply when the low of the buy day stays ABOVE the low of the previous day i.e. the SS day.

 

That should read:

 

A decline zero is simply when the low of the buy day stays ABOVE the high of the previous day i.e. the SS day.

 

Sorry about that. Hope I didnt confuse too many folks. I was tired.

 

Glad you corrected that as I know that your knowledge of Taylor is great and I nearly had to re-read the book.

 

Having said that when you said we had zero decline, do you consider a few points decline as zero or do you go strickly by the mathematical numbers.

 

In this case all the index futures made some decline however it was very shallow, which by it self also means that the market is bullish.

[WHY? 16]

Discussing the regular trading session; the open of regular trading session 2-6-09 (not premarket) was gapped above the close of 2-5 and the low of 2-6-09 never filled the gap or came close to the high of 2-5. While premarket action is included in the OHLC figures in my trading of Taylors system I don't consider the open of the premarket very significant when looking at gaps. That is, the significant gaps down or up occur in the regular trading session.

Edited February 8, 2009 by WHY?

[richbois 10]

These are the numbers I have for the day session only

 

2/5/2009 822.50 849.00 816.75 840.25

2/6/2009 844.00 869.25 842.25 868.25

 

I agree we gapped above the close but not the high of 849 therefore giving us a small decline from the high of 849 to low of 842.25 = 6.75

 

Isn't that the way we are suppose to calculate the decline.