Posted 7:15 a.m.
The Emini opened with many dojis. This is a trading range open, and it increases the chances that the Emini will go sideways to down to the moving average and then bounce and enter a trading range. It also increases the chances that today will spend a lot of time within tight trading ranges.
The Emini is currently Always In Short, but the overlapping bars with prominent tails increase the chances that there will be buyers around the moving average and the it will then enter a trading range. While it is possible that today could still be a trend day up or down, when there is a lot of trading range price action on the open, the odds of a trend day become much less. Limit order traders have been making money buying and selling all day so far, which happens more within trading ranges.
However, the price action can change at any time and the day can convert into a strong trend in either direction. The current selloff is more likely a bear leg in what will become a trading range for at least an hour or two more. Traders will look to buy low, sell high, and scalp until there is a strong breakout up or down with good follow-through. When buying low, traders will prefer 2nd entries until there is more buying pressure.
My thoughts before the open: Learn how to trade futures as a swing trader
The Emini continues to have big swings up and down as it decides on the direction of the breakout. As long as it remains below the gap on the daily charts, the bears have a slight edge. However, until there is a breakout, the probabilities are close to 50% for the bulls and bears. There are several lower highs in around 2080 and just below the gap. They are all magnets today.
When the market is in a trading range, the bulls see double bottoms and the bears see double tops. Both want a breakout and then a measured move. Until there is a breakout, there is no breakout, and the odds favor a reversal, despite how strong each leg up and down is. The same is true with this strong overnight rally. The bulls need to get above 2090 to erase the bear argument, and the bears need to get below 2030.
When there is a big gap, the odds favor a trend day, and there is a slightly higher probability that the trend will be in the direction of the gap. However, a big gap up usually has limited follow-through for the first hour. There is often an initial rally, but whether or not there is, the Emini usually has to get closer to the moving average by going sideways or down before it can go far up or down. If a day trader just scrolls back through this week’s opens he will see that a big gap can be followed by a big trend in either direction.
Since this week has had many big swings, day traders should expect big swings again today, and they should be looking for candlestick patterns that support entries. There are often strong breakouts that lead to big swings without first having clear setups. When that is the case, traders should either enter at the market or wait for a pullback. In either case, they have to trade small enough so that they can use the appropriate stop, which can be very far away when the bars are as big as they have been this week.
Today is a Friday and weekly support and resistance are important. The weekly moving average is a 2076 and the high of the week is 1 tick higher. Although the Emini is up sharply in the Globex session, it still could fall to the open of the week at 2051.50 by the end of the day.
Summary of today’s S&P Emini futures price action and what to expect tomorrow
The Emini had a big gap up and then a weak pullback to the moving average where buyers returned. The day was a trading range day and it closed near the open.
The Emini is waiting for news about Greece. As long as it remains below last week’s gap, the bears have a slight edge, but when the market is in a tight trading range, as it is on the 60 minute, daily, and weekly charts, it is very close to 50-50 for the bulls and the bears. Traders are waiting for the breakout in either direction, and it might happen next week.
Best Forex trading strategies
Traders learning how to trade the markets can see that the Euro was strong and the Yen was weak in overnight trading. The Swiss Franc was particularly strong, but I rarely trade it. Forex online day traders will look for the trends to continue today, and they will buy pullbacks in the EURUSD, EURJPY, EURCAD, GBPUSD, and USDJPY. When the overnight trends last as many hours as these, the odds favor at least a couple hours of pulling back into a trading range today. However, all of these trends provide good Forex trading for beginners, who should look to enter on pullbacks. Although some of the trends have small climaxes, there is not enough countertrend pressure for most traders to be looking for Forex scalps against the trends. Day traders who are trading Forex markets for a living will be looking for trades in the direction of these strong trends until there are strong trend reversals.
See the weekly update for a discussion of the price action on the weekly candlestick chart and for what to expect going into next week.
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, and a 2 day free trial is available.
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.
All scenarios have assumptions, and they can create problems. The fundamental math is that if a trader takes any average trade, his probability of making 1 – 2x actual risk is no worse than 40%. If he takes 100 such trades, he will almost certainly have a profit.
If instead a trader looks back at his 100 trades and selects the worst trades among that 100, and ignores the other 98, he will wonder how he could have ever made a profit. So, yes, it is easy to create scenarios where the math does not make sense because of sampling error, but it is just as easy to create scenarios where the actual risk was 2 ticks and the reward was 100 ticks, and those trades are also within that 100.
There is a math concept that deals with sampling in a population, and this is an example. When the sample size is too small, or when it is structured to not represent the population, the result is that one is led to an inaccurate conclusion. I know it is not all that clear, but it is still an important concept because the computers use it all of the time. If you look at charts, you can see that they take profits at multiples of actual risk.
When I trade, however, I always use the same dollars at risk. Also, I am only referring to scalps for 1x AR (unless the AR is too small).
A trader needs to be at least 55% accurate when taking profits at 1x IR to make some profit. This means that a trader who is 55% accurate and is making less than he is risking will lose over time, be it in four trades or 4,000.
The profit (relative to risk) will vary, and AR will not be the same for each trade, but it will always be less than the IR. In you’re explanation, you’ve included swing trades, which I don’t like to take. The sample size, from my point of view, is that entirely of scalps.
For a scalper, he should stick to very high probability trades. Good scalpers win more than 70% of the time, and they can win 90% of the time if they scale in. The key is learning how to pick trades where the probability is very high. It is highest during breakouts, like at 8 a.m. or 8:05 a.m. today.
Hi Al,
Earlier today you mentioned actual risk, which is a topic that still confuses me. I don’t understand how the math can work out overtime when converting IR to AR. Ex: If I swing with an IR of $500 then convert it to 2xAR and now risk $400. Say I took two trades, profiting $400 each (total $800), then followed by two losers that were set at my IR of $500, the losses would then exceed the profits even though I was 50% accurate and was swing trading.
Thanks!