Emini and Forex Trading Update:
Monday August 3, 2020
I will update again at the end of the day.
Pre-Open market analysis
I wrote on Friday and over the weekend that the Emini gapped up on the weekly chart 2 and 3 weeks ago. Both gaps quickly closed, but there briefly was a 4 month island bottom both times. I said that the Emini might try again this week.
If today gaps up and the gap remains open, there will be a gap up on the weekly chart as well as on the daily chart. There would then be a 4 month island bottom. If the bulls can keep the gap open for a few days, they will probably get a new all-time high this month.
Once there is an island bottom, there is an increased chance of a gap down and an island top at some point afterwards. Therefore, even if the bulls get their new high this month, traders will not be surprised if it fails within a few weeks with a gap down and an island top. Island tops and bottoms are usually not major patterns.
July had a big bull body on the monthly chart and it closed above the June high. After the Emini lost momentum on the monthly chart in June, it regained the momentum in July. This increases the chance of at least slightly higher prices in August.
With the persistence of the bulls in their attempts to create a weekly island bottom, a 3rd attempt will probably be successful this week. That increases the chance of a bull trend day today. A breakout often goes sideways for 2 or 3 days before going a lot higher. Therefore, if today is a bull trend day, it might not be a big bull day.
Can today’s gap fail, like the 2 attempts in August? Sure, but with this persistence, it will more likely succeed. It will probably stay open for at least a couple weeks and maybe much longer. The odds favor higher prices.
Overnight Emini Globex trading
The Emini is up 20 points in the Globex session. It will therefore probably gap up on the weekly chart and gap above the July high. Since this is the 3rd attempt in 4 weeks at a weekly island bottom, there is an increased chance of a bull trend today.
When there is a bull trend day after a gap up, the bull trend often is not very strong. This is because the Emini has already rallied overnight by creating the gap. Therefore, if there is a bull trend today, it will probably be either a Trending Trading Range Day or a Broad Bull Channel day and not a Small Pullback Bull Trend Day.
The chance of a 3rd weekly gap up in 4 weeks failing is less than if this was the 1st or 2nd attempt. The odds are against it, and therefore today will probably not be a bear trend day. Traders should expect either a trading range day or a bull trend day. With Friday being so climactic, there will probably be at least a couple hours of sideways to down trading that starts by the end of the 2nd hour.
Yesterday’s setups
Here are several reasonable stop entry setups from yesterday. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.
EURUSD Forex market trading strategies
The EURUSD Forex market on the daily chart reversed down on Friday from just above the resistance of the September 2018 high. There was a parabolic wedge rally over the past several weeks and it was nested within a 4 month wedge rally.
I wrote last week that traders expect profit taking and at least a couple weeks of sideways to down trading. The obvious targets are the support at the EMA and the breakout point, which is the March 9 high. The profit taking could continue for a month and test the June 19 low. That is the start of the final leg up in the wedge, which is often a target after a wedge top.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market sold off overnight. There has been a couple legs down with most of the trading being sideways.
The EURUSD has been sideways of a couple hours. This is probably the start of a pullback on the daily chart that will last at least a couple of weeks. Consequently, the bulls who have not yet taken profits will sell on rallies. Also, the bears know that the bulls will be more interested in selling rallies than buying. They too will sell rallies.
This should result in at least a couple weeks of sideways to down trading. There will be some strong bull trend day along the way, but the EURUSD should work lower.
Can today’s selloff reverse back up to the high? Yes, as I said, there will be bull days, which will form High 1 buy signal bars on the daily chart. But, the bulls will probably not be able to form more than a 2 – 3 day weak rally for at least a couple weeks. Day traders expect that there will be more opportunities to sell than buy.
Since the EURUSD has spent so much time in trading ranges overnight, traders are both buying and selling. They have been mostly looking for scalps.
Because the daily chart has been up so strongly, the bulls might be able to get today to close back above the midpoint of the day’s range. But, today will probably not reverse back up to the open.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
Here are several reasonable stop entry setups for today. I show each buy entry with a green rectangle and each sell entry with a red rectangle. I rarely also show limit order entries and entries on the close of bars. I do not want the lines to be distracting. If they are longer, I make them dotted. But, they have to be visible, so I make the shorter ones solid. Buyers of the Brooks Trading Course and Encyclopedia of Chart Patterns have access to a much more detailed explanation of the swing trades for each day (see Online Course/BTC Daily Setups).
My goal with these charts is to present an Always In perspective. If a trader was trying to be Always In or nearly Always In a position all day, and he was not currently in the market, these entries would be logical times for him to enter.
If the risk is too big for your account, you should wait for trades with less risk or trade an alternative market like the Micro Emini.
End of day summary
The Emini gapped up and was mostly sideways today. However, the gap up on the weekly chart created a 4 month island bottom with the February gap down. Also, there is now a gap up on the monthly chart, which is rare.
When there is any big breakout above important resistance, the market often will go sideways for a few bars. Few bars on what time frame? All! There is an increased chance of a few sideways bars on the daily, weekly, and monthly charts.
However, all 3 are in bull trends and traders expect higher prices. The odds of a new high are going up, but there is still a 40% chance of a reversal down from a double top with the February high.
Because more often than not, a gap up leads to at least a couple sideways bars, tomorrow has an increased chance of having a lot of overlap with today. This is especially true with so much trading range price action today.
But the Emini is at a critical price. Traders always have to be prepared for a big trend up or down.
See the weekly update for a discussion of the price action on the weekly chart and for what to expect going into next week.
Trading Room
Traders can see the end of the day bar-by-bar price action report by signing up for free at BrooksPriceAction.com. I talk about the detailed S&P Emini futures price action real-time throughout the day in the BrooksPriceAction.com trading room. We offer a 2 day free trial.
Charts use Pacific Standard Time
When I mention time, it is USA Pacific Standard Time (the Emini day session opens at 6:30 am PST, and closes at 1:15 pm PST). You can read background information on the intraday market reports on the Market Update page.
Hi Al,
Sometimes I miss really good setups because the market moved too quickly. I try to get in with a limit order in hopes it comes back to fill me at the level where I wanted to get in. Sometimes it works, sometimes it doesn’t. I was wondering if you face this issues sometimes too or are you super quick now and can get in in time?
Also, I seem to prefer getting in with limit orders more than stop orders during a stop order type of trade. If it comes back to fill which at times it does, the entry is much better. What are your thoughts on trading like this?
I have given a lot of thought to this many years ago. If I try to enter a breakout with a limit order and do not get filled, and I raise the order and do not get filled again, then there is strong buying pressure. I must get long. I usually just enter at the market.
As for waiting for the stop entry and then buying with a limit order, in the old days, that kind of entry was called a marketable limit order. If you think about it, the best trades do not come back to let cautious traders in at a better price.
If the market is in a trading range, that usually works. But if there is a chance of a strong move, I usually just enter with a stop. If I am not fast enough, I might try to buy a 2 – 4 tick pullback, I usually just buy at the market.
This is a corollary to my adage “Good fill, bad trade.” The corollary is “Bad fill, good trade.” But that is only true when a strong breakout is likely.
Thank you!