Emini and Forex Trading Update:
Tuesday January 12, 2021
I will update again at the end of the day.
Pre-Open market analysis
Yesterday closed with 5 consecutive bull bars on the daily chart. Since that is extreme, it increases the chance of a bear day today or tomorrow. But unless there is a strong reversal down, the bulls will continue to buy pullbacks on the daily chart.
Yesterday’s high was below Friday’s high, and therefore yesterday was a pullback. Because it was a bull inside day, it is a High 1 bull flag buy signal bar for today. However, the body was small, and a doji bar is a weak buy signal.
It is important to note that yesterday was the 3rd day above the bull channel on the daily chart. Most breakouts above bull channels fail within about 5 days. There is therefore an increased chance of a reversal down for a couple weeks beginning this week.
Overnight Emini Globex trading
The Emini is up 5 points in the Globex session. Yesterday was a trading range day, and today will open within yesterday’s range. That increases the chance of another trading range day today.
It is important to note what I mentioned above about 5 consecutive bull bars on the daily chart. That is becoming unusual, and the streak increases the chance of a bear day today. Therefore, if the Emini is above the open in the final hour, but within 20 points of it, traders should look for a possible quick move down to below the open.
Monday’s rally was extreme, and the bulls who bought the close of the day never had a chance to exit without a loss. When that happens, the bulls buy more lower, expecting a test of that high close. This would allow them to exit without a loss. But their escaping at that prior high often leads to a double top and then a reversal down.
Sometimes, their scaling in creates a bounce, but it does not reach the old high and they give up. That happened at the October 12 high. With the Emini being above the bull channel on the daily chart, there is an increased chance of a reversal down this week, and it could begin with after a test of Monday’s high.
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. Buyers of both 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 has sold off for 3 days. The selloff was strong enough so that traders expect a 2nd leg sideways to down. Therefore, they will sell the 1st 1- to 3-day rally.
The 1st target for the bears on the daily chart is the December 9 low, which was the start of the bull channel. If the selloff continues to be strong, traders will look for targets on the weekly chart where there is a wedge top. The 1st target on the weekly chart is the most recent higher low, which is the November 4 low.
There have been many strong reversals down, like this one, since the bull trend began in March. Each became a bull flag or a trading range. Traders expect that again here. What they are deciding is whether this one will be bigger. The wedge top on the weekly chart increases the chance that there will be a selloff that begins early this year and lasts a few months.
If the bulls get a big bull bar today, and strong follow-through buying over the next week, traders will expect a breakout above last week’s high. The bulls want the rally to reach the February 2018 high of 1.2555 before there is more than a 2-week pullback. That is unlikely, but if the bull trend resumes strongly within a couple weeks, the odds will shift back in favor of the bulls.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has been in a trading range overnight. I said yesterday that the bear channel had lasted 3 days and that most channels on the 5-minute chart end by the end of the 3rd day. What typically happens is that the channel evolves into a trading range, and there is then a profit-taking reversal for a day or two. The EURUSD is attempting that process today.
Can the trading range become a bear flag and have a big bear breakout today? While that is possible, a trading range leading to a bounce tomorrow is more likely. So far, day traders have been looking for reversals and 10-pip scalps.
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. Buyers of both 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 formed its 3rd consecutive trading range day today. It reversed up from a 2nd Leg Bear Trap that broke below the 60 minute EMA and the open of the week. But it was unable to get much above the 3800 Big Round Number and the open of the day. It closed just below the open to be the 1st bear day in 5 days.
There is now a 2-day pullback from Friday’s all-time high. Today is a High 1 bull flag buy signal bar. But because today was a bear doji bar on the daily chart, this is a weak buy setup. It reduces the chance of a big bull trend tomorrow. Furthermore, it increases the chance of sellers not far above today’s high and of a 4th consecutive trading range day.
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, could you explain why in some cases a bad signal bar in a H1/L1 typically doesn’t lead to a strong move. (Maybe it has to do with the context of being at the open). I recall you saying during the open there in very low probability of a trend from the open with a bad signal bar. However today the wedge 23 had a bad signal bar. Yet led to a strong move down. I understand 23 is an outside down bar. Just unsure when to decipher there difference.
Thank you
Context is always more important than the signal bar. A bear trend almost always will have one or more bear bars closing near its low. If there is a bad signal bar but good context for a short, it is okay to wait for one or more bear bars closing near their lows before shorting.
More bear bars increase the probability. The stop is further away so you pay for the increased probability with increased risk.