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Book Discussion: Reading Price Charts Bar by Bar by Al Brooks
 Updated: October 19th, 2016 (07:45 PM) Views / Replies: 269,075 / 530 Created: September 12th, 2009 (12:01 PM) by cunparis Attachments: 118

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# Book Discussion: Reading Price Charts Bar by Bar by Al Brooks

Malaysia

Futures Experience: None
Platform: Metastock

Posts: 19 since Oct 2010

Abbreviations Clarification

Slipknot511
 Here's an excerpt from one of Al's articles: "One important concept is that of a High or Low 1 or 2. Here’s how it works. The first time in an upswing that there is a bar that has a low below the low of the prior bar, that bar is labeled L1 (Low 1). Examples are Bars 5 and 41 in “First shift.” The next occurrence is an L2, such as Bars 7, 28 and 45. Bar 38 is an H1 and Bar 15 is an H2. There are several nuances to this approach, and one or two will be seen as the day unfolds." Hope this helps. I agree with Heywally, check out Al's website. The essence is more important than the mechanics. You're looking for the breakout of a two-legged pullback in a trend. That's it.

I went to the site mentioned and read the above post. Still, don't quite understand what H1,H2,L1,L2 mean. What does one/two-legged pullbacks mean? Someone please enlighten me. =/

Elite Member
Springfield,Missouri, USA

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lokgotkent
 I went to the site mentioned and read the above post. Still, don't quite understand what H1,H2,L1,L2 mean. What does one/two-legged pullbacks mean? Someone please enlighten me. =/

The basic theory is from Elliott Wave. It's a refinement of Dow theory, which states that the market moves in waves.

The market moves in one of two ways: Impulse or retrace. Elliott Theory states that it is probable that impulse waves will move in three pushes & retracements will move in two pushes.

So, in a trend, when you see two small legs down & then the market resumes in the direction of the trend, you have better than even odds that the trend is resuming.
At a minimum, if you are trading with the trend, you don't want to jump in after the first pullback because it will most likely have two waves.

In the picture below, an H1 is when price moves from A to B. An H2 is when price moves back up after C. In all probability, you are going to make a new impulse up to the next 1. That's what makes it high probaiblity.
Another factor, is that most people are shorting at C. They see the break of the low at A and then see the lower-low at C and see a head-and-shoulders pattern, so they sell. The impulse back up to 1 is largely made up of the stops from all those shorts. Also called a "short squeeze", the move up to 1 is usually fast and furious as the shorts panic and puke their position. So if you are one of the early ones to buy at C, you get the instant satisfaction of seeing your postion move in your favor very quickly.

Al uses bars rather than lines, so it defines his entry point. When the high of the lowest bar at A is broken to the top, that is an H1. When the high of the lowest bar at C is broken upwards, that is an H2.

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If you want so see a good example of this pattern, zoom out on a 60 minute chart of the Nasdaq or Dow. Everyone was predicting the market would drop. Look how it gaps up to make new highs. Anyone buying the low C's, got to sell to all the shorts as they panicked. It works on any time frame, but the lower you go, the more noisy there will be.

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Malaysia

Futures Experience: None
Platform: Metastock

Posts: 19 since Oct 2010

Slipknot511
 The basic theory is from Elliott Wave. It's a refinement of Dow theory, which states that the market moves in waves. The market moves in one of two ways: Impulse or retrace. Elliott Theory states that it is probable that impulse waves will move in three pushes & retracements will move in two pushes. So, in a trend, when you see two small legs down & then the market resumes in the direction of the trend, you have better than even odds that the trend is resuming. At a minimum, if you are trading with the trend, you don't want to jump in after the first pullback because it will most likely have two waves. In the picture below, an H1 is when price moves from A to B. An H2 is when price moves back up after C. In all probability, you are going to make a new impulse up to the next 1. That's what makes it high probaiblity. Another factor, is that most people are shorting at C. They see the break of the low at A and then see the lower-low at C and see a head-and-shoulders pattern, so they sell. The impulse back up to 1 is largely made up of the stops from all those shorts. Also called a "short squeeze", the move up to 1 is usually fast and furious as the shorts panic and puke their position. So if you are one of the early ones to buy at C, you get the instant satisfaction of seeing your postion move in your favor very quickly. Al uses bars rather than lines, so it defines his entry point. When the high of the lowest bar at A is broken to the top, that is an H1. When the high of the lowest bar at C is broken upwards, that is an H2. Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s). If you want so see a good example of this pattern, zoom out on a 60 minute chart of the Nasdaq or Dow. Everyone was predicting the market would drop. Look how it gaps up to make new highs. Anyone buying the low C's, got to sell to all the shorts as they panicked. It works on any time frame, but the lower you go, the more noisy there will be.

So, if I am right. 1-2 is L1 and 3-4 is L2. Then, I can say 1-2, 3-4, A-B are legs as mentioned in Al's book? Please correct me if I am wrong. Again, thanks for your detailed explanation. It does help a lot.

Market Wizard
New Orleans, La (Mardi Gras City)

Broker/Data: Ninjatrader / Optimus Futures / AmpFutures
Favorite Futures: ES / 6E / 6B / CL

Posts: 1,033 since Aug 2009

Al Brooks

During the Trader's Expo in Las Vegas last month I attended the Al Brooks session.

He admitted that his book was a little hard to read and understand.

He also said he has another book in the works and has used his forum to 'filter' the content.
He said the new book would be much easier to read and understand.

Considering how many people like his work but have difficulty understanding what he is saying, this should be another good read unless he makes it so simple everyone already knows the information.

 Rejoice in the Thunderstorms of Life . . . Knowing it's not about Clouds or Wind. . . But Learning to Dance in the Rain ! ! !

Elite Member
Springfield,Missouri, USA

Platform: NinjaTrader (It's a love/hate relationship)
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Posts: 176 since May 2010

lokgotkent
 So, if I am right. 1-2 is L1 and 3-4 is L2. Then, I can say 1-2, 3-4, A-B are legs as mentioned in Al's book? Please correct me if I am wrong. Again, thanks for your detailed explanation. It does help a lot.

Yes. Except, L's are counted in a down-trend and H's are counted in an uptrend. Every line on the chart is a leg. I call them waves, others call them different things.

And the market is fractal in nature, meaning there are legs within legs. Meaning leg 3-4 will have smaller legs within it, possibly a 1-2-3-4-5. and the retracements will usually have smaller a-b-c's inside of the bigger A-B-C's. This is the biggest factor in determining trend. You have to decide which legs are relevant on what time-frame. On my example chart, if you were trading it, the trend would be up. But if you were looking at the next shorter time-frame, the trend may appear down. The important thing is to remember which legs are relevant on the time-frame you are trading. The size of the moves should be in proportion to the moves before it. If an up-leg took 100 bars to develop, a two-legged pullback of 8 bars is not relevant. In all probability, they are smaller legs withing larger legs. Occasionally, you'll hear Al point this out in the live room.

There's no need to try to identify or label the legs. When it's clear and obvious that you've had legs up and now have had two legs down (that are in proportion to the up move), you have a high probability that price will resume the move up once the down move fails.

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Malaysia

Futures Experience: None
Platform: Metastock

Posts: 19 since Oct 2010

Slipknot511
 Yes. Except, L's are counted in a down-trend and H's are counted in an uptrend. Every line on the chart is a leg. I call them waves, others call them different things. [/U]

Just a short one,
1. Instead of L1, 1-2 is a H1 since it is a pullback in uptrend?
2. A pullback in practice should be 20% and above. Correct?

Elite Member
San Marcos, CA

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Posts: 55 since Nov 2010

lokgotkent
 Just a short one, 1. Instead of L1, 1-2 is a H1 since it is a pullback in uptrend? 2. A pullback in practice should be 20% and above. Correct?

Close. 1-2 is the down leg, the H1 bar itself comes at the end of the down move. The H1 is the first bar which has a higher high so Al takes this to mean that this down leg has ended.

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Thessaloniki

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Posts: 26 since Jun 2010

jz166
 PA doesn't work on everything, like Forex.

Could you please explain why? I thought you could use it everywhere, for any time frame.

I am trying to use Al's ideas for spot forex.

Elite Member
Overland Park, Kansas

Broker/Data: Ninja-Contiuum /Optimus / Kinteck
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Big Mike
 I for one welcome it. I am going to consider it "new books" instead of revisions of his original. Mike

Yep....I've just read the current book (multiple times) and would really like to see the new revisions/additions.
I am new to the Al Brooks approach, but already it has shown me (and kept me out of) out of a bad trade I used to take.

One thing that slowed me down initially, was identifying the 'bars' Al talked about.....
(after a while they are easy to spot, but at first I made it too difficult).

This led me to write an indicator for Ninja 7....(actually modified some existing code and added new code)....
that will help identify "H" "L" bars...as well as "Inside Bars" and "Outside Bars".

NOTE: This indicator is most likely ONLY useful for practice and learning....I wouldn't recommend using it for live trades. (Besides, I imagine folks would want to have these basic pieces of Al's system learned before using them live).

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