Emini and Forex Trading Update:
Wednesday October 14, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini yesterday sold off to below Monday’s low. That makes yesterday a pullback in the 4-day rally. It is now a High 1 bull flag buy signal bar for today.
But because of its bear body, it is a weak buy setup. Also, traders might want to see one more test of the support around yesterday’s low before they become confident that the 4-day rally will continue up to a new high. That support is the 3500 Big Round Number, the open of the week, and the EMA on the 60-minute chart.
Remember that the Emini gapped up on the weekly chart many times this summer. Most of those gaps closed before the week ended. The bears will try to close this week’s gap up as well. Therefore, Friday’s high, which is the bottom of the gap, is another magnet below. If the Emini falls below Friday’s high, it would close the gap on the weekly chart.
Can the 4-day rally form a lower high double top with the September high and begin a bear trend? Yes, but the 4-day rally was strong enough so that there will probably be at least one more push up this week. Traders currently expect the rally to get closer to the September all-time high before the bears will try to get a reversal down.
Overnight Emini Globex trading
The Emini is down 1 point in the Globex session. Since yesterday is a weak buy signal bar on the daily chart, today will probably not rally far above yesterday’s high today. Also, after 4 bull days, today will probably not be a big bear day.
Finally, there were several magnets at yesterday’s low. Traders will probably want to test them again today. Consequently, there is an increased chance that today will be a 2nd sideways day. Traders will expect at least one swing up and one swing down. Therefore, if the day begins with a trend, traders will look for either a reversal or a trading range after 2 – 3 hours.
Any day can become a trend day. If there is a series of strong trend bars in either direction, traders will be more willing to hold onto positions. 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. 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 reversed down from a wedge bear flag at the resistance of the September 2018 high and the September 21 sell climax high. But the sell signal bar 2 days ago was a doji, and the 3-week rally has been a Small Pullback Bull Trend. That is a weak sell setup.
While the bears might get a 2nd leg sideways to down over the next few days, they need a big bear day today to convince traders that the wedge was a major sell signal. That is unlikely.
The bulls hope that this week will just be another small pullback in a 3-week Small Pullback Bull Trend.
The dominant feature of the chart is the 3-month trading range. There is now also an 11-day tight trading range. Trading ranges resist change. They tend to continue indefinitely. Consequently, more sideways is more likely than a resumption of this summer’s rally or of the September bear trend. Traders will continue to look for reversals every few days until there are 2 or 3 consecutive big trend days in either direction.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market reversed up from below yesterday’s low. The bears needed a 2nd consecutive big bear day today. Traders knew that was unlikely, and they therefore bought the breakout below yesterday’s low, despite yesterday being a big bear day. This is trading range price action.
The bulls want today to close near its high so that today will be a credible buy signal bar for tomorrow. They hope that yesterday was just a bear trap and that their 3-week rally is intact. They will therefore buy pullbacks today.
The bears know that a big bear day is unlikely at this point. Their goal is simply to stop today from being a strong buy signal bar on the daily chart. They therefore want to sell.
But, day traders are not going to sell until they see the overnight reversal up stall and enter a trading range. Once they see a 20 to 30-pip pullback, they will start to sell rallies for scalps. Until then, day traders are only looking to buy.
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 formed a trading range, had a bear breakout, and then formed a lower trading range. Today was a Bear Trending Trading Range Day. More importantly, it traded below Friday’s high and therefore closed the gap on the weekly chart. This was likely since most of the weekly gaps this summer closed before the end of the week. However, that rally continued up for many more weeks.
Will this rally break to far above the September high? Probably not. The bears want a double top with that high, but will they get a reversal down to below the September low this year? With the strong breakout above the September trading range, the Emini is back to neutral. It might continue sideways up to the election and possibly through the end of the year.
The 4-day rally was strong enough for traders to buy the current 2-day pullback. However, they have not bought yet.
What happens if the Emini trades back below the October 6 top of the trading range? Nothing. The Emini will still be in a month-long trading range. While it would be good for the bears, they need a strong break below that high to convince traders that the Emini is reversing down from a double top. More likely, it will continue sideways.
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.
I said during 28 that today was probably going to have a couple legs down and form a lower trading range in a Trending Trading Range day. That meant that there would probably not be a break below that lower trading range, if the range formed, and it did form.
Got it, thanks Al!
Hi Al, around bar 63 you mentioned in the trading room that it is unlikely (probability < 40%?) to have another BO down, can you help to explain why you think that way at the time? (considering the gap of last week, the 5 cc bear bars and failing twice at EMA, made me think it may have at least 50% probability BO down.)
Hi Al. Thanks for this amazing service. Some floor traders use 8 period EMA and some use 20, what made you choose to use 20 EMA for your analysis?
It does not matter what average you use, or if you use any moving average. A 20 bar EMA was popular with day traders in the 1980’s when I started and that is why I chose it. I traded with people online 15 – 20 years ago and everyone was using something different.