Hi Sam, I'd be glad to try to help. This is my interpretation too; I know other's interpretations may be different, but this is what works for me now. I had posted this in elite section in the elite thread "The elusive price action thread". So I'm copying it over here, with some edits:
(originally in response to Tulanch's excellent points on bpa in his post. The quotes I responded to are his)
Al's original book was awful for me to get through before I got used to his terminology. It's almost like reading a book in a foreign language. You have to learn and get used to his terminology first. At least in the book , Al repeats his terminology and concepts over and over again and you get used to it finally. I hadn't spent more than a few days in BPA chat, but I've read the original book and have attended Al's live webinars for 2 months, and read some of his free daily chart updates on his website. Forgive the messy and simple drawings I did in Windows paint. (I really need to learn photoshop and illustrator someday).
"One of the best BPA moves is in a trend with L2's and H2's at the EMA(20)."
(see attached "H1H2_20.jpg")
A "H1" is a "high 1". In Al's terms it means a candle which has a high , higher than the previous candle AFTER a leg. So a high2 or H2 is the first candle , preferably a bull trend bar after a first H1 and another retracement leg in between the H1 and subsequent H2. The leg can be real small consisting of a few bars, or a big with many bars. Then after a H2 , it's considered a entry continuation long. Probably this may coincide with a hidden divergence followed to the upside. Al also mentions a failure of a continuation after a H2 turns into a "failed H2" which could also be called a "failed final flag" or failed bull flag. And there can be an H3, H4..etc.etc.Anyways I'm just taking time to comment on these few points. The new books are out there now, at least the first one. Glad I postponed re-reading the whole original book which would take too long for me to read and it's nicer to read the first new book which is better written and printed..
"If you’re in a coiled, trading range around the EMA, which Al calls barbed wire (cause it sort of looks like it on the chart) - don’t trade, wait. "
- refers to a bunch of doji's or small body bars with significant wicks and tails so together it looks like "barb".
However in another part of the book Al says a bunch of barb wire trending still can indicate a leg of a move.
"It's any 3 push pattern, not just the traditional wedge you Google (which by the way is an Al wedge too). The pushes need not all be HH or LL either, that’s the part that’s hard to discern (for example a Head and Shoulders pattern is an Al Wedge)."
- Al's wedge usually results in a price breakout to a fall off or a rise depending if the right end of the wedge is higher than the left side or beginning of the wedge, or vice versa. In general after a wedge ends if price failed to continue the prior trend then it "fails" (failed flag) and retest where price was at the beginning of the wedge.
"The easiest wedge to see it a 3 push HH wedge. After the 3rd push look next for either a lower extreme (LH) or an overshoot (HH). If it's an inside extreme, you have just completed your 1st leg back to the EMA, look for one more."
- see attached "wedge_LH.jpg" - kind of looks also like a head and shoulders doesn't it. (Al does mention common patterns and fib levels etc. but he says it's simpler to recognize the patterns through BPA)
" If you identified an over shoot, look for 2 legs back to the EMA. Al is big on failures, failures lead to 2 legs, meaning if you have a failed breakout of a range to the up side, look for 2 legs to the down side. In the 3 HH wedge example, an undershoot is a failure to make a new high. Failure in direction X, look for 2 legs in the other direction."
- see attached "wedge_HH.jpg" - kind of looks like another head and shoulders with one shoulder having a big "chip" in it.
" And if price pulses up 5 ticks (say just past the EMA), look for a 5 tick failure to follow, the scalpers got their point and are now taking profits."
- Al usually defines a "scalp" as 4 ES ticks or 1 pt. He points out a "5 tick failure" is a failure to make 5 ticks since 1 tick is used to make up for the spread/minimum slippage and then 4 more ticks for the scalp goal. So price could go 4 ticks and not reach the 5 tick required so the trade "failed".
Even after attending many of Al's live webinars I still didn't get a sense of a sure trading system. it's very subjective and frustrating in that Al doesn't do live calls ( he does enter trades but doesn't say he did until after the fact; he claims he chooses not to call trades because he's not a CTA and doesn't want to be liable which I suppose is understandable) and most of the time says it's "50/50" or he only enters when it's higher probabilty like "60%" and he says he's always ready to change his mind about the direction. And he didnt' cover in the original book in that during his live webinars , even if there looks like a possible setup or a concept of his price action, Al would say a lot of the time .. "would I take this trade?" And he usually says he's not certain it's high probability enough like for example there were "far more bull trend bars than bears to go short in the last 10 bars", or "this bull trend bar had a wick at the top. Why did it have that? That makes it not so certain it's a breakout into an uptrend" and so on. . However Al's price action concepts are great and you can see often when they work. Anyways, hopes this helps. Like tulanch and other members of the brookspriceaction.com club, it took me months of reading and re-reading pages in the book and reading the BPA forum and listening to the webinars to finally get most of his terminology and concepts and I may still be getting some of it wrong...
update: I added "es_120511_pm.jpg" which shows a live example of an H1 and H2 off of an ema which can be seen here. (I screwed up with H1, it was actually the candlestick before, now edited.) And "es_120511_pm2b.jpg" to show a corresponding divergence with an oscillator indicator.
Last edited by Cloudy; January 30th, 2012 at 06:58 AM.
The following 8 users say Thank You to Cloudy for this post:
And another couple of posts I did in that same thread:
"December 5th, 2011, 09:25 AM
Here's a screencap of the ES about 25 minutes ago illustrating the HH overshoot and two legs reverse. And then a tiny breakout-pullback of the new downtrend. One can check later today how Al commented on the ES in his daily update and see if his analysis was similar..
(see attached "es_120511.jpg" )
I agree completely Al's a nice professsional guy. He's totally dedicated and calm in his live webinars throughout the whole session and gives a good example of a disciplined trader. He doesn't really need the measly fee per month for the live trading room (prorated, you could join the last day of the month and the fee would be $4), because he's trading live for himself and also sharing his time with an audience.
UPDATE: 3:45pm est after market. I decided to go ahead and take more screenshots as the day progressed today to show this set of examples of more BrooksPrice Action along with use of bollinger bands, a couple of MAs, and pivot point levels. However bpa was the primary entry critera as I didn't really look at the MA's and did not use oscillators today.
In this screenshot, price made another wedge. Looking for confirmation of a breakdown, or if it failed then a continued breakout long:
ES broke down and made two small legs similar to the wedge before it. I took a short scalp here. (I had made a couple scalp wins earlier at the beginning of the session.)
Waited to see if it would stay in the trading range. Waited for a H2 which never happened. Instead it failed and with sudden news, a big spike down.
In the last hour of the NYSE session. Price seemed to form what Al calls a "spike and channel". I went short for a scalp even though I probably should have held for 2pts. Price also bounced down from the R1 pivot point level. It went further for two legs. And now at the 8mins before the end of today's session, price has dropped down to the main Pivot level and currently is retracing up a little.
So one can see how BPA can work with a few indicators and some s/r levels. Along with PA, one could still use oscillators and look for divergences and other methods, but PA can provide a helpful non-lagging rational for what price is doing despite the indicators. I would suggest the best way to get familiar with BPA is to read Al Brook's books. The new first book of the three set is out. The 2nd will be out the beginning of Jan. next year. www.brookspriceaction.com ; Also if one has time, reading the original book works since Al repeats many of his concepts over and over again for most every chart example throughout the book.
I just felt compelled to post another BPA example, around 3am to 4am EST on the ES.
A "breakout pullback", then an entry on the H2. (1 tick above the top of the H2). Again pivot points and bollinger bands help put the PA in some framework. (yes, I also have a faint regular Keltner there too)
And another divergence viewpoint off of stochastics and ESFX's CCI. This goes to show while it corresponds with BPA and is good for confirmation, one doesn't absolutely need to see the oscillators and divergences.
excellent analysis. I was just reading about wedges now and was a little confused about 2 and 3 legs so your posts were very timely for me! I am going to print them, they are so useful! Sometimes, it is better to read somebody who can "interpret" Brooks for you
The following user says Thank You to anituchka for this post:
You have labeled your chart incorrectly
They should be L1 and L2
An H1 occurs in an UP TREND
I am busy trading
I need to read all the posts to avoid duplication, then I will try and help
As far as I am concerned, I think that the labelling is correct.
H1 and H2 appear in a bear pullback within a bull trend.
Anyway, it is funny to see how Al Brooks' work (I'm a fan) leads to different interpretations.
Now that I have got rid of the distractions, I can concentrate.
Your labeling is CORRECT.
I am sorry.
This is how I looked at the chart.
Hindsight showed an uptrend which turned down.
I ignored all the info until I saw a test of the high.
So the trend was down.
No high 1's and 2's in a down trend
Please send me your email address and I will email you a bottle of Johnny Walker Black Lable
The following user says Thank You to bobc for this post:
When I first looked at your chart I saw something immediately, and suggested the labeling was incorrect.
Then everybody challenged me. I had another look and admitted my error.
But its being worrying me . What did I see first time?.
A TREND LINE BREAK.
And a trend line break indicated a market turn. The market was not in a bull trend . It was a bear.
Therefore no H1 & H2. We have to look for L1 & L2
The L1 was 2 bars after your H1
I am sorry. You must return the Johnny Walker