Day and swing traders use Taylor Trading Technique for several favorite trade set-ups. Traders take advantage of positioning their trades in sync with the ‘ebb-and-flow’ of the Markets identified by Taylor Trading Method ‘3-day cycle’.
George Taylor’s Book Method, known as Taylor Trading Technique, captures the inflows and outflows of ‘Smart Money’ in what can be considered a repetitive, 3-day cycle. Simply stated, institutional investors, or ‘Smart Money’, push markets lower to create a buying opportunity and then push markets higher to create a selling opportunity within a 3-day trading cycle.
The Taylor Trading Method ‘3-day cycle’ can be identified as follows:
- Buy Day, where the market is driven to a low for a Buy opportunity;
- Sell Day, where the market is driven higher for an opportunity to Sell your long position; and
- Sell-Short Day, where the market is driven lower after establishing a 3-day cycle high for a Sell-Short 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 Taylor Trading Technique have been tested by time to offer traders superior probability of success.
The first favorite trade using Taylor Trading Technique is placing a long trade at or near the low made on the Buy Day, that is, the ‘Buy Day Low’. A trader will use all of his/her resources to identify the Buy Day Low, because, according to Taylor Trading Rules, there is over an 85% chance the Buy Day Low will be followed 2-days later by a higher market high on the Sell-Short Day, even in a down-trending market. A trader can successfully close higher on the long trade during the Sell Day (second day of 3-day cycle) or wait to close on the Sell-Short Day (third day of 3-day cycle) if markets are in a particularly bullish sentiment.
The second favorite trade using Taylor Trading Technique is placing a long trade on the Sell Day if the Market/trading instrument decline below the previous day’s Buy Day Low. According to Taylor Trading Rules, there is a very good chance of at least rallying back to the Buy Day Low within the 3-day cycle offering an opportunity to successfully close higher on the long trade at least by the Sell-Short Day.
The third favorite trade using Taylor Trading Technique plays the Market/trading instrument for a short trade. According to the ‘3-day cycle’, the Market is driven lower after establishing the high on the Sell-Short Day, that is the ‘Sell-Short Day High’. Therefore, if the Market closes near the Sell-Short Day High, it is possible the Market will gap above the Sell-Short Day High at the open of the Buy Day. According to Taylor Trading Rules, there is a very good chance of at least declining back to the Sell-Short Day High on way to establishing the Buy Day Low offering an opportunity to successfully close on the short trade during the Buy Day.
Of course, a trader should evaluate other underlying dynamics of the Market/trading instrument before considering if a long trade or short trade is warranted. The trader wants to place a trade that has the best chance for success in the shortest period of time. Therefore, it goes to reason that other sentiment indicators should be in align with the decision to trade long or short.
For example, the trader should consider placing the trade-whether long or short-that is in sync with the Market’s/trading instrument’s prevailing short-term trend. If the short-term trend is positive, then the trader should concentrate on those opportunities that favor long trades; if the short-term trend is negative, then the trader should concentrate on opportunities that favor short trades.
In addition, evaluating Elliott Wave patterns of the Market/trading instrument is beneficial in determining the potential for near-term upward or downward momentum. The trader may place more aggressive short trades when the Market/trading instrument is embedded in a downward Elliott Wave pattern, but, on the other-hand, may be more willing to place a more aggressive long trade when the Market/trading instrument is in an upward Elliott Wave pattern.
In any event, a trader can decide to trade long or short within the Taylor Trading Method 3-day cycle by considering the following simple rules:
- If the Market/trading instrument is trending upward, then a long trade may more strongly be considered because, with respect to Taylor Trading Method 3-day cycle, higher Sell-Short Day Highs are being made relative to shallower Buy Day Lows.
- If the Market/trading instrument is trending downward, then a short trade may more strongly be considered because, with respect to Taylor Trading Method 3-day cycle, lower Buy Day Lows are being made relative to lack-luster Sell-Short Day Highs.
- If the Market/trading instrument is trending sideways, then both long and short trades may be considered because, with respect to Taylor Trading Method 3-day cycle, the difference between Buy Day Lows and Sell-Short Day Highs remain relatively constant to each other.
Traders find as much relevance to Mr. Taylor’s ‘Book Method’ in today’s Markets as they did when first introduced in the early 1950’s. Although the speed of trade execution has tremendously increased, the human nature of trading in sync to the prevailing trend has not, and is still the trader’s best attack and defense when trading along-side the ‘Smart Money’.