Emini and Forex Trading Update:
Thursday October 8, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday was a big bull inside day after a big bear outside day on the daily chart. There is now an IOI (inside-outside-inside) pattern, which is a Breakout Mode setup. Yesterday is now both a buy and sell signal bar.
Today will probably gap up and trigger the buy signal. Furthermore, the Emini is currently trading above the September 16 high, which is the top of the month-long trading range.
In general, a breakout has a 50% chance of failing. However, this is important resistance. The overnight breakout will probably lead to at least a couple days of sideways to up trading before traders decide if the breakout will fail.
The bulls want the 2 week rally to continue up to a new high this month. If they get consecutive closes above the September 16 lower high, the Emini will probably continue up to the September 3 all-time high. At that point, the bulls will want a strong breakout to a new high. But the bears will try to create a reversal down from a double top.
At the moment, the odds still are favor a lower high and a 2nd leg sideways to down on the daily chart. But that could chance in the next few days.
Overnight Emini Globex trading
The Emini is up 20 points in the Globex session. If it opens here, it will gap above the September 10 high. That is the top of a month-long trading range.
The bears want the breakout to fail and for the Emini to reverse down strongly on the open. But I have been saying that the rally might continue up to 3500 before the bears will sell aggressively again.
Since the bears were unable to get follow-through selling after their big bear day on Tuesday, the odds are that the Emini will get some follow-through buying over the next few days.
If there is a trend today, up is slightly more likely. Because the Emini is at major resistance, there is an increased chance of a big breakout above that resistance. That means the bulls have an increased chance of a big bull trend.
Trend days usually being in the 1st hour or two. There is a 20% chance of a strong trend up or down that begins within the first few bars. Otherwise, traders will look for early sideways trading. The bulls will try to reverse up from a wedge bottom or double bottom near the EMA. However, the bears will look for a wedge rally or a double top and then a bear trend.
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 in an early bear trend. The bears see the 2-week rally as a wedge bear flag at the EMA and the September 2018 high.
They triggered the sell signal yesterday, but yesterday was a bull day. The bears will try to get a 2nd reversal down within the next few days.
They need a couple bear days to convince traders that the month-long bear trend is intact. Their minimum goal is a test below the June 10 high, which was the breakout point of the July rally. They also want a measured move down from the 2-month trading range.
The rally from the September low is a Small Pullback Bull Trend. The bulls want it to break strongly above Tuesday’s high, which is the top of the wedge bear flag. They then want a break above the September 10 lower high.
Finally, the want a couple closes above the September 1 high. If they achieve those goals, traders will look for the rally to continue up to 1.25 at the February 2018 high.
Even though the EURUSD is still in a 3-month trading range after a 4-month rally, the weekly chart (not shown) has a wedge rally to resistance. Consequently, the odds are still in favor of a test down to the June 10 high before there is a break above the September high. However, a few consecutive bull days will reverse those odds.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market has been in a tight trading range for 7 days. This continued overnight. Day traders will continue to look for reversals and small profits. The overnight range has been so small that the scalps have only been 10 pips.
Today’s high is exactly at yesterday’s high. Yesterday was a High 1 buy signal bar in a 2-week Small Pullback Bull trend. However, the bulls so far have been unable to trigger the buy.
Can today reverse down strongly from a micro double top with Tuesday’s high? Can it break strongly above Tuesday’s high? There has been no energy for 7 days. The odds are against a strong trend today. A trend can come at any time, but day traders will continue to scalp reversals until they see a strong breakout up or down.
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 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 gapped above the September 16 high at the top of the September trading range. It was a small bull trend day. After gapping up, the Emini then entered a broad bull channel on the 5 minute chart, but the channel was mostly a trading range.
When there is a breakout on the daily chart, the Emini often goes sideways for 2 – 3 days as traders decide if the breakout will succeed or fail. Today is consistent with this.
I have been saying that the Emini’s sell zone was from around 3400 – 3500, but probably above the September 16 high. The Emini is in that zone now, but there is no sign of a top. Therefore, traders assume that it will go at least a little higher before the bears will try to get a reversal down from a lower high on the daily chart.
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, when buying above bar 6 in situation like this, where should be the reasonable stop for a [scalper]? Also for [swing trader] I believe the initial stop should be below 4 or 5, and we should get out ASAP when bar 7 accelerates down, but since there could be buyers at around 50% PB from 6 high, what should be the reasonable thing for a swing trader to do when #7 accelerates down? Thank you!
I answered this on the chatroom website. If a scalper can use a wide stop and scale in, he has higher probability.
I think a stop below 4 for a scalper is not good. If I am not going to scale in and use a wide stop, I typically recommend getting out below a bear bar or about the size of a scalp below a bull bar. That means 4 – t ticks below 5.
Thanks Al. Can you also please explain how to determine the smallest size of scalp when looking at a chart? I think you talked about it somewhere in a slide but couldn’t find it..
I talk about that in the course. A quick guide is about 5 – 10% of the recent average daily range.
Thanks Al as always!