Day and swing traders use the Taylor trading technique for several favorite trade setups. Traders take advantage of positioning their trades in sync with the ‘ebb and flow’ of the markets identified by the ‘3 day cycle’ of the Taylor trading method.
The method in George Taylor’s book, known as the Taylor Trading Technique, captures the inflows and outflows of ‘Smart Money’ in what can be considered a repeating 3-day cycle. Simply put, institutional investors, or ‘Smart Money’, push the markets down to create a buying opportunity and then push the markets up to create a selling opportunity within a 3-day trading cycle.
The ‘3 day cycle’ of the Taylor trading method can be identified as follows:
- buy day, when the market is at a low for a buying opportunity;
- sell day, when the market rises for an opportunity to sell your long position; Y
- Short selling day, in which the market declines after setting a 3-day cycle high for a short selling opportunity.
Traders take advantage of the 3-day cycle by placing long and short trades in sync with the dynamics of the cycle. The following three favorite trades using the Taylor trading technique have been time-tested to give traders a higher chance of success.
The first favorite trade using the Taylor trading technique is to go long at or near the buy day low, ie the ‘buy day low’. A trader will use all of his resources to identify the buy day low because, according to Taylor’s trading rules, there is more than an 85% chance that the buy day low will be followed 2 days later by a high. highest in the market on Sell-Short Day, even in a downtrend market. A trader can successfully close up on the long trade during Selling Day (2nd day of the 3-day cycle) or wait to close on Short Selling Day (3rd day of the 3-day cycle) if the markets have a sentiment. particularly bullish.
The second favorite trade using the Taylor trading technique is to place a long trade on the sell day if the market/trading instrument drops below the previous day’s buy day low. According to the Taylor Trading Rules, there is a very good chance of at least rallying to the buy day low within the 3-day cycle, which offers the opportunity to successfully close higher on the long trade at least for the short sale day
The third favorite trade using the Taylor trading technique uses the trading/market instrument for a short trade. According to the ‘3-day cycle’, the market is driven lower after setting the high on the short selling day, ie the ‘short selling day high’. Therefore, if the market closes near the short day high, it is possible for the market to gap above the short day high at the buy day open. According to the Taylor Trading Rules, there is a very good chance of at least going back to the high of the short day to establish the low of the buy day, which offers the opportunity to successfully close the short trade during the shopping day.
Of course, a trader must assess other underlying market dynamics/trading instrument before considering whether a long or short trade is warranted. The trader wants to place a trade that has the best chance of success in the shortest amount of time. Therefore, it stands to reason that other sentiment indicators should be aligned with the decision to go long or short.
For example, the trader should consider placing the trade, either long or short, that is in sync with the prevailing short-term trend of the market/trading instrument. If the short-term trend is positive, then the trader should focus on those opportunities that favor long trades; if the short-term trend is negative, then the trader should focus on opportunities that favor short trades.
Additionally, evaluating the Elliott Wave patterns of the market/trading instrument is beneficial in determining the potential for short-term upside or downside momentum. The trader may go more aggressively short when the market/trading instrument is embedded in a descending Elliott Wave pattern, but on the other hand may be more willing to go long more aggressively when the market/trading instrument is in a downward trend. an ascending Elliott wave pattern.
In any case, a trader can decide to go long or short within the 3-day cycle of the Taylor trading method by considering the following simple rules:
- If the market/trading instrument is trending up, then a long trade can be viewed more strongly because, relative to the 3-day cycle of the Taylor trading method, higher short-day highs are being made relative to with shallower buying day lows.
- If the market/trading instrument is trending down, then a short trade may be considered more strongly because relative to the 3-day cycle of the Taylor trading method, lower buy day lows are being made relative to lackluster short-selling day highs.
- If the market/trading instrument is trending sideways, long and short trades can be considered because, relative to the 3-day cycle of the Taylor trading method, the difference between the buy day lows and sell day highs in short they remain relatively constant with each other. .
Traders find Mr. Taylor’s ‘book method’ as relevant in today’s markets as they did when it was first introduced in the early 1950s. Although the speed of trade execution has increased tremendously, the Human nature to trade in sync with the prevailing trend has not, and it remains the trader’s best offense and defense when trading in conjunction with ‘Smart Money’.