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Book Discussion: Reading Price Charts Bar by Bar by Al Brooks
By that I meant that it doesn't matter if the double top or double bottom has a higher high, lower high (for a double top), or lower low, higher low (for a double bottom). I always enter on stop limit orders. For example, if we trade to new lows, bounce and then price tests that area again, I don't care if we breakout a little lower or make a higher low. If it's close to looking like a double bottom it's close enough to take the trade. I trail my buy stop order above each bar, so I will not miss the trade. Nobody truly knows if the double top/bottom will hold, or where price will end up being for sure. The market might breakout and do another leg down. I've found that a lot of times when price makes a lower low it will usually reverse and act as a failed breakout, which is usually a good trade. The good thing about entering on stops is that price needs to be moving in your direction so it keeps you out of a lot of bad trades. The bad thing is your not getting the absolute best price you can, but you don't need to buy exact bottoms or sell exact tops to be profitably.
Brooks has produced some interesting material for many, but attempting to trade most of the setups without additional visibility into probable market direction will leave a wake of losers for pure cool-aid drinkers. If you don't believe this, try to stop looking for examples of the ones that were winners and start looking for ones that failed.
Trend line overshoots and H2s/L2s fail frequently. And, although good advice, the trend line breaks with retracements to the extreme have been a staple technique since the beginning of time, so nothing new here.
Brook's trend lines (in the book) seem to be cherry-picked since many lines would have sometimes been drawn in an entirely different manor in real time trading. Traders will ignore this substantially subjective work at there peril.
As we all know, authors are notorious for cherry picking charts where it all worked out as per their "rules". But, where do we see charts that point out the multitude of failures that happen on a daily basis on every time frame as demonstrated with Brooks' setups.
Speaking of Brook's setups, you can say that they are exactly that and nothing more. Just Setups. The market can be setting up for a positive trade or setup YOU up for a big loser. The trick is obviously to know when the positive trade is setting up.
As many have pointed out, Brooks' writing style places a huge burden on the reader for no apparently good reason. It s hard to reconcile this considering his claims of holding a PhD in medicine.
The book is full of errors (editing?), bars on charts are labeled incorrectly, and proprietary nomenclature is used prior to be defined. As for setups, trend lines are subjective, wedge patterns are subjective (based on subjective trend lines), 5 tick failures are subjective (depending on where you were filled), failed failures frequently fail AGAIN, one tick breakouts are frequent losers, etc, etc. Certainly, all of these work....SOMETIMES. Just like Stochastics, RSI, etc., etc.
In my opinion, Brooks' main contribution to traders is in his approach to market structure. The market does indeed have a rhythm and focusing on the number of "legs" up/down after a break, number of pushes up/down, extreme tests, higher highs, etc., all help to keep you on the right side of the market.
I'm sure Brooks does well, but he has been at it for 20+ years. You can be sure that the "setups" that he takes are filtered substantially through those seasoned lens which has been honed on primarily one market.
Before I am burned at the stake here for not explicitly drinking the cool-aid, let me say that Brooks' setups DO generally represent valid approaches. But, in my opinion, they should only be used as secondary tools unless one is a long-time professional trader. Newbies, beware!
A trader would be well advised to utilize other proven tools as a PRIMARY approach prior to applying the Brook's Entry techniques. Specifically, consider looking at Floor Pivots, TICK extremes, previous SUBSTANTIAL swing points and daily H/L's and use accurate momentum and OB/OS tools to understand where the market is probably close to reversing. Most of these setups will be losers as often as winners without first knowing where the market is probably heading in the next few bars.
I personally think what Al Brooks teaches is a base to learn off of. I think someone who has never traded before and knows little about the market will lose. That's probably why Al says only start with one or two setups and that's it until you learn those and become profitable. I've read Al's book a couple of times and got a basis for reading price action (which is what I wanted) and used that knowledge to form some same and similar type trades that have high probability win rates. I was skeptical about it too that people can actually trade just from candle bars alone, but after looking at many charts and a lot of screen time you can start reading what is happening. You start to see the movements and rhythm of the market, you can tell when the market is going to go higher or when it reverses just by how it acts. When you can do that you will be successful (plus the risk and money management of course).
It's true that many of the setups do fail once and a while, but for me I still see 60% plus winners (that's if you take everything most days, a lot of days I see 80% plus). For me, if an H1 or L1 fails and I get stopped out I will always take the H2 or L2, but I also try to avoid some H1 or L1's that are too far away from the EMA(20). I don't use trend lines at all, I don't find them that useful. I've seen trend line breaks and failures, but it's just something I'm not interested looking at. I also don't pay attention to legs, wedges, micro TL breaks or channels anymore. Also, I usually don't take failed failures. If an H2 or L2 fail at the EMA, I generally will take that failure and I can tell you most times it works out, but not always. If it doesn't I take a small loss and if it does I take a larger profit, but when it comes to failed failures, I just don't see the point of taking them, I wait to see what the market does if I'm in that situation. Usually when you start to see setups fail you are in a choppy sideways market and they are difficult to trade and it would be wise to avoid it.
Over the last couple years I've messed around with a lot of crap that is floating around in this profession and most of it 95%+ is exactly that. I wish I had wandered onto trading price action a long time ago, it would've saved me tens of thousands of hours of my time. Now that I have, I'm glad that I did. You have to remember that you have to do what fits your style. If you need indicators to trade then use them, all that matters is the end result, it doesn't matter how you get there, just that you do get there.
Al Brooks book is not easy reading, but I think it is a masterpiece of showing how price actions works. After a bit of practice you suddenly begin to see "READ" the market, and this is what you want as a trader. A gem of advice that is in the book, is take LESS trades and increase your contracts. What I do is take trades with 10 contracts, 9 for a profit target of 6 ticks, and 1 as a runner starting at breakeven when the first profit target hits. 3 - 4 trades a day and you have made a few thousand $. Usually it can be 1 -2 hours trading a day, sometmes even less. If you can work at 2 or 3 markets simultaneously even better. Reading the market for a trade of 6 ticks becomes almost second nature using the knowledge that Al has put forward in this book. I have seen that a 6 tick profit target works on all markets, 6A, 6B, 6E, ES, NQ, TF, etc. It is worth the effort to try and use this method, it will also help you in the methods that you are using today, as suddenly you begin to see things in a different light.
I have an ATM strategy that I use, with stops at 8 ticks, Profit target at 6. When profit is reached the last contract is brought to break even. When the trade is entered, I look to see if the stop is OK and sometimes may move it up or down a tick or so to be in line with the setup bar.
Regarding types of trades, I use trendlines, channels, H2, L2, 2 legged moves - take the second move. All I am looking for is a high probability trade for a min of 6 ticks. Normally any of these moves gives 6 ticks.
Chris - I've just started reading Al's book - only finished Chapter 1, which is a book in itself - and I find your posts very helpful : how about posting one of those charts of your day's trades ?
I trade mainly 6E, 6B & FDAX & have set up some quite stripped down charts to try to observe some of Al's set ups on 6B (I trade the European morning, so ES won't work for me, although CL might). I have an 8 range chart and a 5min side by side; interestingly, the M5 sometimes generates clearer and better entries than the R8 and it's certainly easier, so I am thinking of switching my focus to just the one chart, as does Al.
I still have RSI (8 period, smoothed 3) & am testing VolStop - I don't really have a feel for volume, so am not sure if I will keep it. I like that ADXVMA... and I am using your tweaked HollowBars - in my attached screenshot, the bar colours may look very similar, but onscreen the difference is clear and I like their neutrality.
Please do post a chart should you feel like it.
J.
Edit (a few hours later) : decided to switch to a simple M5 chart - big change for me as I've used tick charts, then recently range bar charts, for years. Done the same for FDAX and CL, all "in for observation"...
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