Tuesday traded below Monday’s low and then above its high. It was therefore an outside day. Yesterday reversed down from above Tuesday’s high and traded below Tuesday’s low. It was therefore an outside down day. Consecutive outside bars.
Consecutive outside days is an OO (outside-outside) pattern, which is a Breakout Mode pattern. On a smaller time frame, it is an expanding triangle. Many traders will buy above the pattern and sell below. Therefore, yesterday is both a buy and sell signal bar.
It sometimes takes a few days for either signal to trigger. The day after a big outside day is often an inside day. That then creates an ioi (inside-outside-inside) pattern, which is another Breakout Mode setup.
When an OO comes late in a bull trend, it is often the Final Bull Flag. Therefore, a bull breakout will probably not get very far before reversing down.
Since the E-mini is overbought, there is a higher probability that the sell signal could lead to a selloff that could last a week or more. Remember, I have been saying that the E-mini would rally in the 1st half of December and then probably reverse down in the 2nd half. This could be the start of that reversal.
Overnight E-mini Globex trading
Today is rollover day. That means March is now the front month. However, most day traders will continue to trade the December contract today because December will still have much more volume. They will switch to March tomorrow.
The bears want today to be a 2nd consecutive big bear day. But the E-mini is down only 9 points in the Globex session. While it might gap down, which would trigger the OO sell signal on the daily chart, the gap would be small. Small gaps typically close in the 1st hour and are usually insignificant.
The bears want a 2nd consecutive big bear day. However, that only happens 25% of the time on the day after a big sell climax day. If today is a bear day, it will probably be a weaker type of bear trend, like a Trending Trading Range Day or a Broad Bear Channel.
Can today reverse up from below yesterday’s low to above yesterday’s high? Today would then be a 3rd consecutive outside day. That is rare and therefore unlikely. However, the bulls would like today to close near its high. The bulls will then see it as a buy signal bar for tomorrow.
On the day after a sell climax day, there is a 75% chance of a couple hours of sideways to up trading beginning by the end of the 2nd hour. Because yesterday was a big bear day in an overbought market, if today is going to trend, down is slightly more likely.
However, day traders know that there will probably be early trading range trading. They will look to buy a double bottom or wedge bottom, and sell a double top or wedge rally. There will probably be at least one swing up and one swing down today.
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. 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 E-mini.