Emini and Forex Trading Update:
Tuesday October 27, 2020
I will update again at the end of the day.
Pre-Open market analysis
Yesterday tested the February high and the open of the month, and it reversed up in the middle of the day. The day closed just above the midpoint of the range, and therefore the bulls won the day. That reduces the chance of a big bear day today.
The month closes on Friday. If the month has even a small bear body, there will be an increased chance of lower prices in November. The bulls obviously do not want this, and they therefore will try to get the month to close above the open of the month.
Yesterday collapsed for the first half of the day, but spent half of the day around the open of the month. That tells traders that the open of the month could be important all week. It therefore increases the chances of sideways trading this week.
Yesterday broke below a small wedge bull flag on the daily chart. Today is the follow-through day. The more bearish today is, the more likely the Emini will begin a swing down.
If today instead is a bull day closing near its high, traders will suspect that the bear breakout failed. They then will look for a reversal up to the October 12 lower high.
What is most likely? As I said, the Emini spent a lot of time around the open of the month yesterday. That increases the chance of a sideways day today. Since yesterday’s range was big, today could be an inside day.
Overnight Emini Globex trading
The Emini is up 9 points in the Globex session. As strong as yesterday’s selloff was, the 5-minute chart was in a trading range for the final 5 hours. It broke above the top of the range in the final hour. The bulls are hoping that the breakout will lead to a measured move up today. That would be near the 20-bar EMA on the 60-minute chart and yesterday’s high.
The day after a sell climax usually has a lot of trading range trading. Traders decide if the selloff was just a sell vacuum test of support (here, the open of the month) or the start of a bear trend.
With yesterday closing in the middle, traders are neutral. That increases the chance of a trading range day today. There will probably be at least one swing up and one swing down. The open of the month and yesterday’s low are magnets below, and the EMA on the 60-minute chart and yesterday’s high are magnets above.
With yesterday’s range being big, even if today is a trading range day, the legs will be big enough to swing trade. While a trend day is less likely, if there is a series of strong trend bars in either direction, traders will swing trade. But they know that the trend will probably only be a strong leg in what will likely be a trading range 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 has rallied for 5 weeks. It has pulled back for 4 days. This is a bull flag. The September 10 major lower high and the September 1 trading range high are magnets above. Traders expect the EURUSD to go at least a little higher over the next week.
The bears have a double top lower high major trend reversal with the September 21 high. But, the EURUSD is not going down. It will probably go at least a little higher, and the bears will again try to get a reversal down from a double top with either the September 10 lower high or the September 1 high.
The chart has been in a trading range for 4 months. There have been many strong legs up and down. Traders know that trading ranges resist breaking out. They therefore expect reversals, even though one leg will eventually break out. This 4-week rally will probably go a little more sideways to up, but as relentless as it has been, it probably will fail to continue to much above the September high.
There have been 2 sell signal bars over the past 3 days, but they have failed to lead to a selloff. When a market tries to do something a couple times and fails, it usually then tries the opposite. Traders expect at least slightly higher prices before a bear leg begins.
Overnight EURUSD Forex trading
The 5-minute chart of the EURUSD Forex market overnight rallied, sold off sharply to below yesterday’s low, and then reversed up strongly again overnight. This is the 5th day in a tight trading range. The selloff and reversal up were abrupt. This makes it likely that the EURUSD will be sideways to up for the remainder of the session.
Yesterday was a sell signal bar on the daily chart. The selloff broke below yesterday’s low and triggered the sell signal. But the bulls aggressively bought it.
The rally is strong enough so that the EURUSD might continue up to above yesterday’s high. Today would then be an outside up day. That would increase the chance of higher prices tomorrow.
Day traders have only been buying since the overnight reversal up from the sell climax. They will probably mostly buy for the rest of the day.
But if the bears get a 20-pip pullback, the rally might transition into a trading range. At that point, day traders will also look to sell reversals down from 10-pip scalps.
Can today continue much higher? It is in the middle of a 5-day tight trading range. That is a magnet and it will probably limit how much higher the rally can go. The bulls would like it to continue up 25 more pips to above yesterday’s high. If they succeed, it will probably not get much above that high because the EURUSD would then be at the top of the 5-day range.
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
As I said was likely, today was a trading range day. It stayed between the support of the open of the month and the resistance of the EMA on the 60 minute chart. Traders still need more information before they decide if yesterday’s bear breakout will lead to a test down to the September low. The alternative is for the Emini to reverse up and test the October 12 lower and and possibly the all-time high.
Because today had a bear body, it is a sell signal bar for tomorrow. The bears see it as confirmation of yesterday’s bear breakout. It slightly increases the chance of lower prices. But unless the bears get more follow-through selling over the couple days, the odds will be back 50-50.
The Emini might wait until after the election a week from today before deciding on its direction. For the remainder of the month, the open of the month is the most important price. The month closes on Friday. The bulls want a bull body and the bears want a bear body on this months candlestick.
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.
