Emini and Forex Trading Update:
Tuesday December 8, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini formed an inside bar yesterday. It is a sell signal bar for a nested wedge top on the daily chart. But yesterday was only a bear doji, and the prior 5 days had bull bodies. Also, the bull channel has been tight. Traders see this as a minor sell signal in a Small Pullback Bull Trend and expect that there will be buyers not far below. However, if today is a big bear day on the daily chart, it could still be the start of a 2-week correction down to below 3400, even with a strong sell signal bar.
Overnight Emini Globex trading
The Emini is down 14 points in the Globex session. It therefore will open around yesterday’s low. It might even gap down. But if it does and the gap is small, the gap will probably close in the 1st hour.
Because yesterday was an inside day on the daily chart, it is both a buy and sell signal bar for today. But a doji is a weak signal bar. There might be more buyers than sellers below its low, and more sellers than buyers above its high. Furthermore, most days for 6 weeks have had at least one swing up and one swing down. Day traders will expect that again today.
Day traders should not trade in tight trading ranges
Much of the trading over the past few days has been in tight trading ranges. Most traders will lose money trading in that environment. Traders should be looking for swing trades and entering with stop orders.
A tight trading range is a limit order market. The computers are betting on reversals. This means they are selling as the Emini goes up and buying as it goes down. Day traders have to patiently wait for clear reversal setups or brief strong breakouts. Also, they should expect the swings to end in about an hour instead of lasting all day.
However, because a reversal is likely in December, a bear trend day can come at any time. It is important to note that whenever a reversal down is likely, there is an increased chance of a bull trend day as well. If too many weak bears are short and the Emini does not go down, a small rally can turn into a big rally as the bears cover their shorts. But with most days being trading range days, a trading range day is more likely.
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 broke far above the September high, but it is stalling near some measured move targets. There were 10 days without a pullback. That is extreme and therefore climactic, and it usually attracts profit-taking.
When a rally has been strong, like this one, the 1st reversal down is usually a pullback, which means a bull flag. Traders expect at least a small 2nd leg up.
Yesterday is a buy signal bar, but it has a bear body. The bulls want today to be a bull bar closing on its high. That would be a higher probability High 1 bull flag buy signal bar. That means there would be a better chance of a resumption of the bull trend for at least a few days.
If today triggers the buy signal by going above yesterday’s high, many bulls will not take the buy signal. That is because yesterday had a bear body. Traders are concerned that they might be more sellers than buyers above a bear bar, which means that the pullback might have a 2nd leg down.
The bears see the rally as an extreme buy climax. They hope the profit taking is extreme as well. If it is relentless and the EURUSD falls below the September 1 high, and then below the November 9 high, traders will begin to conclude that the breakout has failed and that the bull trend is reversing into a bear trend. There is currently only a 40% chance of this. It is more likely that there will be at least a small 2nd leg up before there is a trend reversal, or a pullback lasting more than a few days.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market has been sideways overnight. The low is above yesterday’s low and the high is below yesterday’s high. Today so far is an inside bar. If it remains an inside bar, it will be a Breakout Mode bar, which means it is both a buy and sell signal bar. The bulls would like it to close on the high, which would make it a better buy signal bar on the daily chart. There would be a better chance that tomorrow will resume last week’s bull trend.
The bears want today to close on the low. It would then be a sell signal bar. There would also be 3 consecutive bear bars on the daily chart. That would increase the chance of at least slightly lower prices.
Daytraders have been scalping today
Since today so far is a trading range and an inside day, it is neutral. Traders are selling reversals down and buying reversals up, and they are scalping. While it is possible that today could be a big bear day, that is unlikely. Traders were expecting a 1 to 3 day pullback on the daily chart, and then an attempt to resume the bull trend. Today is the 3rd day, and traders are becoming more interested in buying on the daily chart. They will try hard to make today be a buy signal bar. That reduces the chance of a big bear day.
Since yesterday is a bear bar on the daily chart and that is not a strong buy signal bar, many bulls will not be eager to buy relentlessly today. But they are hoping that today closes near its high so that today will be a strong buy signal bar for tomorrow.
What is most likely for the rest of today? It will probably remain sideways and inside of yesterday’s range. Also, it should have at least a small bull body. But the 2 bear bars on the daily chart weakened the bull case. The EURUSD might have to go sideways for another couple days before traders decide between a resumption of the bull trend and a deeper pullback on the daily chart.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
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.
End of day summary
The Emini had a trading range open. It opened below yesterday’s low, then rallied to the EMA. It sold off, but reverse up again from a double bottom and a test of yesterday’s low.
It rallied in a Small Pullback Bull Trend to above yesterday’s high, which meant that today was an outside up day. The rally continued up to a new all-time high.
The final leg up was a buy climax, and the Emini reversed back down to the EMA and an earlier trading range, which was the Final Bull Flag.
Because today was a buy climax day, traders expect at least a couple hours of sideways to down trading that begins by the end of the 2nd hour. The day after a strong bull trend day is usually not another strong bull trend. If tomorrow rallies, the Emini will form a weaker bull trend day, like a Trending Trading Range Day.
Can tomorrow be a big bear day? There is a slightly increased chance of a big bear day on the day after a big bull day. More likely, the Emini will spend a lot of time in trading ranges tomorrow.
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.
