Emini and Forex Trading Update:
Wednesday October 28, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini on Monday broke far below the small wedge bull flag on the daily chart. It fell below the open of the month and the February high. But it reversed up and closed above both support levels. Also, it closed just above the midpoint of the day’s range, which makes the bear breakout less certain.
Yesterday was a bear bar on the daily chart. Traders see that as Emini follow-through selling and confirmation of Monday’s bear breakout. It increases the chance of at least slightly lower prices today. Today will probably open with a big gap down. If today is another bear day, the Emini will probably work down to the September low over the next few weeks.
Because yesterday was an inside day on the daily chart and it had a bear body, it is a Low 1 sell signal bar for today. The bears want a measured move down to the September low, and the bulls want the September rally to resume up to the all-time high.
This is all about the monthly chart
This week’s selloff has been all about the monthly chart. There are 3 trading days left in October (Friday is the final trading day). October is an inside bar on the monthly chart. If it ends up with a bear body, it will increase the chance of lower prices in November.
The open of the month might remain an important magnet for the rest of the month. But the bulls will need a reversal up today. Otherwise, the Emini will be too far below the open for it to get back above the open by Friday’s close.
If the Emini is within 20 points of the open of the month in the final hour on Friday, the Emini will probably get drawn to it. Then, in the final minutes of trading for the month, either close a little above or below the open of the month.
While the odds of lower prices are increasing, the bulls still have a chance of reversing the bear breakout. But they need to start forming bull bars.
Overnight Emini Globex trading
The Emini is down 65 points in the Globex session. It will therefore open with a big gap down. A big gap increases the chance of a trend day. A bear trend is slightly more likely.
But the Emini will open far below the 20-bar EMA on the 5-minute chart, which is a measure of the average price. Day traders do not like to sell far below the average price unless the selling is far above average. They would need to see a couple consecutive big bear bars in the 1st 30 minutes before they will sell. The bulls want to see a couple big bull bars before buying and betting on a bull trend.
When there is a big gap down, there is only a 20% chance of a big trend up or down on the open. There is an 80% chance that the 1st leg up or down will lead to a trading range. The bulls will look to buy a double bottom or wedge bottom for a swing up. The bears want a double top or wedge top near the EMA before selling for a swing down.
Also, if there is a trading range open and then a trend, the trend usually will not last all day. It typically either evolves into a trading range for at least a couple hours or has at least a small reversal late in the day.
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 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 is turning down from a double top lower high major trend reversal. If today closes on its low, the EURUSD should fall at least to the October 15 low. The bulls will try to form a double bottom with that low or with the September 25 low.
I said last week at the top of the rally that reversals were more likely than breakouts. That is true on the way down as well. But if today remains a big bear day, it will probably be the start of a selloff that will last at least another week.
Also, it should have at least a 2nd leg down. Legs in trading ranges often have 2 legs, like the rally to the September 1 high, the selloff to the September 25 low, and the rally to the October 21 high.
The weekly chart is important. Despite the 3-month trading range, there was a 4-month wedge top. Today could be the start of a 2nd leg down from that wedge top. If it is, the 1st target is the March 9 high, which was the breakout point for the summer rally.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has sold off in a Small Pullback Bear Trend overnight. That is a strong bear trend. Day traders have only been selling.
However, the day’s range is big and the selloff is beginning to have a wedge shape. That typically will attract profit takers. If so, the bear trend will begin to transition into a trading range for at least a couple hours.
But until there is at least a 20-pip bounce, day traders will only sell. Once there is a 20-pip bounce, day traders will also begin to buy reversals up from 10 to 20-pip scalps.
The bulls want a trend reversal up. They will probably not get one today. If they do, they will have to stop the selling and enter a trading range for at least a couple hours first.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
I will post chart after the close.
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 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 collapsed on the open and closed the gap above the September 25 high on the daily chart. It then went sideways in a big range. It sold down to the low of the day at the end of the day. That increases the chance of another gap down tomorrow.
Because today was a sell climax day, there is an increased chance of sideways trading tomorrow. The 4 day selloff has been strong enough for traders to look for at least a small 2nd leg down. Therefore, traders will sell the 1st one to two day bounce.
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
Today I asked you about how you determine equivalent of swinging 1:2 risk reward while using 2 pts stop and 4 pts reward in big days, not scalping 2pts with 4 pts stop.
Kind regards
I misread your question in the chatroom. I would not be scalping with a 2 point stop if the bars are 10 points tall.
As a guide, a scalp is about 5 – 10% of an average daily range or about half the size of an average bar’s range. If that comes out to 4 points, your method would risk 2 points. That would not be successful.
Most traders will lose money if they primarily scalp (consistently go for a profit that is less than the height of an average bar). Instead, they should be looking for a profit that is about twice the size of an average bar and plan to hold for at least 5 – 10 bars.
The starting point is always the risk. If a person buys above a buy signal bar and the bar is a major higher low, his stop would be below that bar. If that bar is 9.5 points tall, his risk would be 10 points. His initial target should then be about 20 points, which is 2x his initial risk.
If the trade goes his way, he can determine his actual risk and adjust his profit target based on that. But if the actual risk is small, like 3 ticks, he should not exit with 6 ticks. He should see how far and fast the market moves. If it is moving well, he can continue try for a profit based on about twice his actual risk. Or, simply hold until the trade is no longer working, which could be much more than 10 points.
That helps a lot, thank you for your reply.
Kind regards
Kajetan