Emini and Forex Trading Update:
Tuesday November 3, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini has been sideways for 4 days after a parabolic wedge sell climax down to support. Today will probably gap above yesterday’s high. This will create an island bottom with the gap down from 4 days ago.
A big gap up increases the chance of a trend day. Since the Emini is turning up from a sell climax at support on the daily chart, if there is a trend, up is more likely than down.
Also, there will be a higher low double bottom with the September low. When the 2nd leg down of a double bottom is a wedge, there is a better chance of at least a couple legs sideways to up.
The Emini has been sideways for 3 months. It has been oscillating around the February high of 3361.75. It should get there today or this week. That would close last week’s gap down.
Can today be a bear trend day? Yes, but there is currently a 60% chance that the gap up will stay open today, which means that today should be sideways to up. However, if there are several early big bear bars, the odds of a bear trend will go up.
There is still an ioi sell signal on the monthly chart
What about the ioi sell signal on the monthly chart? I mentioned that October was a big bar on the monthly chart, and a big bar in an ioi reduces the chance of a reversal down. Therefore, the monthly sell signal is not strong. Even if the sell signal triggers, it will probably only lead to a 1 to 2-month pullback.
However, October is also a High 1 bull flag buy signal bar on the monthly chart. A big bear bar in a buy climax is a weak buy setup. Therefore, if it triggers, it will likely only lead to a 1 – 2 month rally before there is another reversal down.
Since the Emini probably will not go up or down much over the next few months, the 3-year trading range should still be in control on the monthly chart. Traders will look for reversals.
Overnight Emini Globex trading
The Emini is up 38 points in the Globex session. It will probably gap above yesterday’s high. When there is a big gap, there is only a 20% chance of a relentless trend day from the open.
The bulls are hesitant to buy too far above the average price (the EMA). But, the bears are usually not eager to sell a gap up opening after a sell climax at support on the daily chart.
Most of the time, the 1st leg up or down reverses within the first 30 – 60 minutes and then the Emini enters a trading range. The bulls want to buy a double bottom or wedge bull flag near the EMA. The bears want to sell a double top or a wedge top.
If there is a trading range open for the 1st hour or two and then a trend, the trend usually does not last all day. It typically evolves into a trading range late in the day.
What happens if there are several consecutive trend bars up or down on the open? That will increase the chance that today will be a relentless trend day. With the Emini oversold at support, traders expect a rally over the next week. Therefore, there is an increased chance of a bull trend 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 rallying from a parabolic wedge sell climax that formed the 2nd leg of a double bottom with the September low. That is a common bottom pattern. Traders expect at least a couple small legs sideways to up over the next week or two.
The bears hope that the rally will form a bear flag. For example, they would like it to go sideways for a few days and then resume down again from a test of the EMA. If the rally breaks above the EMA, they will then try for a double top with either the October 21 high or the September high.
Since the chart has been in a trading range for several months, the bulls will likely be disappointed within a week or so. For example, if the EURUSD goes sideways around the EMA and the October 9 high, there will be a head and shoulders top bear flag. That will give the bears hope again. Right now, traders expect at least slightly higher prices.
Overnight EURUSD Forex trading
The URUSD Forex market has been rallying strongly overnight on the 5-minute chart. Day traders have been buying for the swing up. Since the range is about average, the bull trend will probably not continue much higher. The bulls will start taking profits. This will result in a 20 – 30-pip pullback.
Once the bears see that, they will begin to sell rallies for 10-pip scalps. Also, the bulls will start buying pullbacks instead of buying at the market. With traders buying low and selling high, the bull trend should begin to evolve into a trading range.
Can the EURUSD reverse down? It probably will not because the rally is strong. But if the rally stops and the chart begins to go sideways, the bears would have a 30% chance of a reversal down late in the day.
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 up, creating a 4-day island bottom. It then rallied in a series of big bull bars to above the February high, which has been a magnet for 3 months. It is also around the midpoint of the day’s range. Today was the 5th consecutive day that closed near the middle of the range. That lack of conviction increases the chance of more trading range trading tomorrow. The election and Thursday’s FOMC also add uncertainty.
That early rally today was likely going to be an exhaustive buy climax, and it made a trading range likely. I talked about that in the chatroom during the rally.
The rally transitioned into a trading range after a parabolic wedge buy climax. The Emini then reversed down from a truncated wedge to test the February high. Traders began buying on a pullback to below the February high.
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.
Emini monthly – ioi (Aug, Sep, Oct). With Oct monthly closing near its low and an i bar in a breakout mode pattern, why does the Oct large bar range reduce the probability of a reversal down (assuming if the Oct sell signal is triggered). Can you please provide additional explanation why bar range is important in a breakout mode pattern and how it affects the probability of breakout mode succeeding or failing.
Do you have bar range criteria to establish probability of breakout pattern success or failure, e.g., not greater than x point bar range (or % of…) and relative to what context, e.g., the other bars in the breakout pattern mode or other point range (like larger trading range).
Thank you very much for the time you take to provide analysis.
An ioi is a trading range. Trading ranges are neutral. The probability is therefore not high. Risk/reward becomes important. Selling below a big bar is selling at the bottom. The stop is further above so the risk is greater and the risk/reward is worse.
A 50 – 50 trade with lower risk/reward will attract fewer traders. Therefore a big bear inside bar is less bearish than a medium or small bear bar, where you are selling closer to the top of the range.
If I am a smart bull computer and a bear bar is forming, and I cannot buy enough to turn the bar into a bull bar, I’m going to short. I want the bar to be less bearish. A big inside bar will attract fewer sellers and is less bearish. I then buy once the bar closes, confident not many bears will sell.