Emini and Forex Trading Update:
Monday June 3, 2019
I will update again at the end of the day.
Pre-Open market analysis
Today is the 1st day of June. May was an outside down month and a double top. The bears want June to trade below the May low to trigger the monthly sell signal. If they are successful, the odds favor only another month or two down because the 2019 rally was strong and the monthly chart is in a trading range.
When a signal triggers on a higher time frame, there is usually a pullback beyond the breakout point. Consequently, if today trades below May’s low, the odds favor a rally to back above the May low. It can happen today or it could take a week or two. Traders will then decide if the sell signal will fail or succeed.
Since the bulls always want the opposite, they hope that June closes near its high. It would therefore be a buy signal bar on the monthly chart for July. They want any breakout below the May low to reverse up.
The daily chart has been in a tight bear channel for a few weeks. In addition, it has had 4 small legs down. This is therefore a parabolic wedge selloff. Since that is a sell climax, it increases the chance of a bounce this week.
However, the momentum down over the past month is good enough to make sideways to lower prices likely over the next few weeks. Traders will sell a 2 – 3 day rally, betting that the selloff will reach the targets below.
Most days over the past month have had both at least one swing up and one swing down. That increases the chance of another mostly trading range day today.
Overnight Emini Globex trading
The Emini is down 8 points on the Globex chart. If the day session opens here, it will trigger a monthly sell signal. Furthermore, there will be a gap down on the weekly and monthly charts. Gaps on the monthly chart are rare. Furthermore, small gaps typically close in the 1st hour. Consequently, if there is a gap down, there is an increased chance of a rally in the 1st hour.
Since there is a parabolic wedge sell climax on the daily chart, there is an increased chance of a 2 – 3 day rally this week. In addition, the daily chart is at the bottom of that tight bear channel. Since the bottom of the channel is support, there is a reduced chance of a big bear trend day today.
Finally, most days over the past month have had swings up and down. Traders will assume that today will also have a lot of trading range price action unless they see a strong trend up or down.
Friday’s setups
Here are several reasonable stop entry setups from Friday. 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. Buyers of the Brooks Trading Course have access to a much more detailed explanation of the swing trades for each day.
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.
EURUSD Forex market trading strategies
The EURUSD daily Forex chart has been in a weak bear channel for a year. For the past month, it has been in a triangle. It has rallied for 3 days but the bars are not big and there is no breakout yet. This is a Breakout Mode pattern. That means there is a 50% chance that the 1st breakout up or down will reverse and a 50% chance that a successful breakout will be up or down.
Because a bear channel is a bull flag, traders should expect a rally lasting several months at some point. However, there is a 50% chance that there will first be a sharp breakout below the bottom of the yearlong bear channel first. If that were to happen, traders will look for a reversal setup. If they get one, they could be buying the bottom of a rally that would probably last many months.
Until then, traders will continue to look for 2 – 3 week rallies and selloffs that reverse. There is no sign that this is about to change.
Profit-taking is US Bonds could lead to a bounce in the EURUSD Forex market
The US bond market is in a buy climax and Friday’s extreme rally will probably attract some profit-taking. US Treasuries have been in a flight-to-quality rally. If traders begin to wonder that it might be ending, they will take profits in US bonds and begin to put money elsewhere. That includes Europe. If people are more willing to buy Euros, the profit-taking in the US bond market could lead to a 2 – 3 week rally in the EURUSD Forex market.
Overnight EURUSD Forex trading
The EURUSD 5 minute Forex chart has rallied for 3 days and it is 40 pips above the overnight low. The bars are not big, and the rally so far looks minor.
The rally is now testing the bear trend line at the top of the month-long triangle. Because the overnight pullbacks have only been 15 pips, the bears are not yet making money. Day traders are buying for scalps.
If the bulls begin to create bigger bars closing on their highs and consecutive big bull bars, they will be more willing to swing trade. Their next target is last week’s high of 1.1215, and then the top of the triangle at the May high.
The bears need the overnight rally to stop. Because it is now at the daily bear trend line, they will start to look for sell setups on the 5 minute chart. Once the 5 minute chart transitions into a trading range, the bears will begin to sell at prior intraday highs and on reversals down. However, with small bars and small legs, they, too, will only scalp. Swing traders need bigger bars and bigger legs.
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. Buyers of the Brooks Trading Course have access to a much more detailed explanation of the swing trades for each day.
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.
End of day summary
The Emini triggered a monthly sell signal by trading below the May low today. However, it had violent swings up and down around that May low all day.
The price is clearly important. Traders are deciding if the sell signal will lead to a swing down or if it will fail. The February 11 gap is a magnet just below today’s low. I have been saying for 2 months that it is a target below. It might close tomorrow.
However, there is a parabolic wedge sell climax on the daily chart. This increases the chance of a bounce this week before the gap is filled. If there is a bounce, it will probably be minor. Odds favor at least slightly lower prices within a few weeks. This is especially true after so many tech stocks had surprisingly big selloffs today.
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 Intraday Market Update page.
Hi Richard,
I well remember using large SL and scaling in and being suprised by strong move against me.
You are refering to skunk stops, but what if market broke down for MM, lets say another 20 points and than reversed. You would not be talking about skunk stops than.
I think if you tight your trade management to getting out at be when entry bar fails you are much better off with you equity curve and mental recovery.
Bulls: 2 legs PB to MA with nice signal bar.
Bears: traped bulls who bought close of bar 15 with DT 16-20 and important S/R low of last month.
Now you have case for bulls and bears and you need to choose one and its easy to miss important details, especially when you are in the trade.
But generally, when you take a good entry market gives you chance to get out be.
Bar 24 doji entry bar
BAr 25 another doji
Bar 26 another doji reversing, but unable close above 25
27 gave you briethe chance to get out be and most clearly did by looking what happened after.
Using tight SL after strong move against you is loosing strategy. Your SL was ok, when you taken H2 bar 23.
But when strong bear BO happened you can not expect to hold price at LOD with bar like 35.
You have to use different management. But your mind is still with your innitial bar 23 entry
and you are protecting yourself at this point you are not thinking correctly what SL is appropriate for bulls when bar 27 closed.
I would not think of skunk stops I would think of correct SL to certain situaion.
I struggle with skunk stops. After 8 – 14 I expected buyers below, so I bought above 23 as a H2 buy and intended to get out below a bear bar or else use a wide stop and scale in. No skunk stops. 26 and 27 had tails, 28 was at Friday’s close, and 29 was Friday’s low, all possible skunk stops, so I held all the way to below the low of the day, expecting buyers below 7, for a 22 point loss- not catastrophic to the account, but will take time to recover. Where should I have exited to avoid a skunk stop, but also to avoid a 22 point loss?
I suspect that you were not in the chat room today. I said that the rally was a Bull Dominant Feature and that therefore the rest of the day would either be a bull trend or a trading range. If it was going to be a trading range, it could test the low of the day. Furthermore, I said that 16 was a sell signal for an expanding triangle top that began with 76 yesterday. That was enough to make most bulls exit with a tight stop, for example 6 – 8 ticks below 15 or 1 tick below 16. Then, they would look to buy again later since a trading range day was much more likely than a bear trend. There was a big bear swing, but in a trading range day.
Yes, 23 was a High 2 bull flag. However, it followed 3 consecutive bear bars, and the selloff could have tested the 7 high. This was because 7 was a bad buy signal bar. Therefore, it was better to get out of longs early and wait.
I said that rather than buying above 23, the math was better to wait for 2 – 3 consecutive bull bars, which did not come. I also said that the chart might have become Always In Short with the consecutive bear bars at 21. Finally, with the breakout at 28 and the follow-through bar 29, I said that the market might be forming a measuring gap for a test of the low.
I mentioned many times that the day was going to remain a trading range day, even if there was a new low. Therefore, it is better to sell high and not low. That includes selling out of a long. If a trader did not exit early, it would have been better to buy more above a bull bar near the low, like 38, or better, 43, and then try to get out breakeven on the trade or possibly on a test of the 23 high. Part of the reason for the big tail on 48 was the bulls who wanted to get out above 23 gave up.
In general, if a trader tends to pick skunk stops, it is probably better to exit early and then wait. Buying the High 2 was not high enough probability after 3 bear bars. Remember, if the day was going to be a bull trend, a trader does not have to enter early. There will be many other good buy setups. If he enters early, he risks a deep pullback to the low of what could be a trading range day.