Emini and Forex Trading Update:
Monday August 24, 2020
I will update again at the end of the day.
Pre-Open market analysis
The Emini has been in a tight trading range for 3 weeks. It is tilted slightly up. Traders are wondering if the Emini will break far above the February high.
Four of the past 7 weeks have gapped up on the weekly chart. Only one of the gaps remained open. However, the Emini is up 28 points an hour before the open and this week will therefore probably be the 5th gap up in 8 weeks.
Streak of 9 consecutive bull bars is a buy climax
There was a streak of 9 consecutive bull bars that ended a couple weeks ago. That is an extreme buy climax. Traders should expect a reversal down to the bottom of that buy climax, which is around 3200. But the longer the buy climax continues, the more likely it will be a successful breakout and have at least a couple legs up.
A strong trend can go a long way before reversing. There is no sign of a reversal yet. It is important to note that there is a 40% chance of no top from the streak. That means there could be a strong rally from here and a couple legs up before the bears try again.
Overnight Emini Globex trading
The Emini is up 28 points in the Globex session. It will therefore probably gap above last week’s high.
A big gap up increases the chance of a trend day. A bull trend day is more likely.
But it also will mean that the Emini is far above the average price on the 5 minute chart. Bulls do not want to pay far above average (the EMA). Therefore, a big gap up has an increased chance of becoming a trading range open.
If so, the bulls will wait for the Emini to get closer to the EMA before buying. They will look for a double bottom or wedge bottom near the EMA to buy.
The bears know that the bulls will be hesitant to buy far above the EMA on the open. They will look to sell either a double top or a wedge top, expecting at least a test down to the EMA.
If there is a trading range open and then a trend, the trend usually does not last all day. This is because the trading range open tells traders that the Emini is around a fair price. That reduces the chance that it will have to go far in a search for fairness.
However, 20% of the time when there is a big gap up, the day becomes a big trend day up or down. If that is going to happen, there are usually several consecutive strong trend bars in the 1st 30 minutes.
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. 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 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 been in a trading range for a 4 weeks. Because it has had 3 legs up and higher highs and lows, it is also a wedge top. But it is mostly a trading range and therefore a Breakout Mode pattern. There is a 50% chance of measured move up or down.
If the bulls get their measured move up, the trading range will probably be the Final Bull Flag. Traders will expect a reversal down within a few weeks, and they will look for a selloff lasting several weeks.
If the bears get their downside breakout, traders will expect a test of the breakout points. These are the June 10 and the March 9 highs. There is no sign of an impending breakout. Therefore, traders believe that there is a 50% chance it can go either way. In the meantime, they continue to look for reversals ever few days.
While last week is a sell signal bar on the weekly chart, it was the 1st bear bar in 9 weeks. Traders have been so eager to buy that this week might not fall below last week’s low to trigger the the sell signal.
Even if the bears trigger the sell signal, the EURUSD has been sideways for 5 weeks in a strong bull trend. The odds are against a major reversal down. The bulls would return within several weeks.
Overnight EURUSD Forex trading
The 5 minute chart of the EURUSD Forex market reversed up from last week’s close, but has been in a 20 pip range for 4 hours. Day traders were buying overnight, but they now are also selling reversals down from the high for scalps.
Today’s low is above Friday’s low and today’s high is below Friday’s high. Therefore, today is an inside day after an outside day on Friday. If today closes near its high, it will be a buy signal bar for an ioi bull flag. Traders would then expect at least slightly higher prices tomorrow.
Why not expect a resumption of the 4 month bull trend? Because the EURUSD has been in a trading range for a month. Traders know that reversals every few days are more likely.
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 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 big gap up to a new all-time high and then entered a trading range. It rallied into the close and today closed near the high.
When there is a big gap up, the Emini often goes sideways for 2 – 3 days before traders decide if the breakout will succeed or fail. Today was a trading range day. That increases the chance of another trading range day tomorrow. With the late rally, there might be follow-through buying on tomorrow’s open.
If there is a gap down over the next few days, there will be an island top. Island tops and bottoms are usually minor reversal patterns. This is particularly true now because the Emini is also in a strong bull trend. Traders will buy the 1st reversal down, even if it lasts a few weeks.
Can the Emini race up from here? Buy climaxes sometimes go a long way before there is profit taking. This buy climax is extreme. That will tend to limit the upside over the next few weeks, despite the gap up to a new all-time high.
Remember, there was a streak of 9 consecutive bull bars that ended 2 weeks ago. A rally from there usually ends within a couple weeks.
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.
