Summary of Al Brooks's Trading Price Action Trends

Everest Media

Description

Please note: This is a companion version & not the original book.
Sample Book Insights:
#1 The most useful definition of price action for a trader is any change in price on any type of chart or time frame. The smallest unit of change is the tick, which has a different value for each market.
#2 The most important decision for traders is whether the market is trending or not trending. They must read the price action on the chart in front of them to make this decision. The market is very efficient, and there is a 50 percent chance that the next tick will be up and a 50 percent chance that it will be down.
#3 The most useful aspect of price action is what happens after the market moves beyond previous bars or trend lines on the chart. For example, if the market goes above a significant prior high and each subsequent bar forms a low that is above the prior bar's low and a high that is above the prior bar's high, this price action indicates that the market will be higher on some subsequent bar, even if it pulls back for a few bars in the near term.
#4 The market often breaks out of a small flag to reach a scalper's profit and then pulls back, and the pattern then evolves into a larger flag. This larger flag may also break out in the same direction, but it might instead break out in the opposite direction.

Sujets

• General
• Business
• Economics
• General officer
• Economie gestion
• Investments
• Securities

Informations

• Publié par: Everest Media LLC
• Date de parution: 10 mai 2022
• Nombre de lectures: 0
• EAN13: 9798822501461
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Insights on Al Brooks's Trading Price Action Trends
Contents Insights from Chapter 1 Insights from Chapter 2 Insights from Chapter 3 Insights from Chapter 4 Insights from Chapter 5 Insights from Chapter 6 Insights from Chapter 7
Insights from Chapter 1

#1

The most useful definition of price action for a trader is any change in price on any type of chart or time frame. The smallest unit of change is the tick, which has a different value for each market.

#2

The most important decision for traders is whether the market is trending or not trending. They must read the price action on the chart in front of them to make this decision. The market is very efficient, and there is a 50 percent chance that the next tick will be up and a 50 percent chance that it will be down.

#3

The most useful aspect of price action is what happens after the market moves beyond previous bars or trend lines on the chart. For example, if the market goes above a significant prior high and each subsequent bar forms a low that is above the prior bar's low and a high that is above the prior bar's high, this price action indicates that the market will be higher on some subsequent bar, even if it pulls back for a few bars in the near term.

#4

The market often breaks out of a small flag to reach a scalper's profit and then pulls back, and the pattern then evolves into a larger flag. This larger flag may also break out in the same direction, but it might instead break out in the opposite direction.

#5

The market does something for a reason. Whatever reason I am giving is just one of the countless reasons behind the move, and I point to that one reason to give some insight into what some of the major traders are doing.

#6

The purpose of television is to make money for the corporations that own the shows and the networks. The shareholders of those companies are not concerned at all about whether you make money from trade recommendations on the shows.

#7

Many television analysts make trade recommendations based on their fundamental analysis, and then describe the trade in technical terms. However, their predictive ability based on the fundamentals is pure guesswork and has a 50 percent probability of being correct.

#8

The market is controlled by computer algorithms, and the programmers are always looking for every possible edge. Individual traders have no way of knowing if what they see is real or a trap set by one computer to trap other computers.

#9

The price action that traders see during the day is the result of institutional activity, and not the cause of the activity. The activity is the result of a confluence of unknowable influences that lead to a trade being profitable or a loser.

#10

The only reason institutions are responsible for price action is because it makes trading based on price action more reliable. Most institutions are not going to be day trading in and out, making the market reverse after every one of your entries.

#11

There are certain price action events that change the perspective of smart traders. For example, if there is a two-legged pullback in a bull trend and the market then trades above the high of the prior bar, many buyers will be long at one tick above that prior bar's high. If the market then trades below the low of the two-legged pullback, everyone will assume that the market will have at least one more leg down.

#12

High-frequency trading, which is the majority of stock, futures, exchange-traded fund, currency, commodity, and option trading, is done by firms that have algorithms designed by quantitative analysts called quants.

#13

The same is true for HFT firms. Their edge is always very small, but if they use it thousands of times a day, it will theoretically produce consistent profits. The edge in trading is always very small, but if you use it thousands of times a day, it will theoretically produce consistent profits.

#14

The computerized trading controls most of the volume, and this will always be the case. The technology is rapidly changing, and it controls most of the price action.

#15

The problem that HFT firms face is that they can kill the goose that is laying those golden eggs. Their trading is statistically based, and they might lose money if enough firms make adjustments due to recent price action.

#16

The high-frequency traders are helping the institutional traders get a better price on their trades, which is something that the quants used to do for the institutional traders. The quants are providing liquidity to the market and reducing spreads for all traders.

#17

The market has inertia, but at some point, the current price action becomes excessive. For example, if the daily SPY is in a bull channel and it has not touched the moving average for 45 days and it has only done that once in the past 10 years, the current behavior is extremely unusual. Anything that is extreme cannot last long because it will eventually show up as an excess on every imaginable measure of excess.

#18

Two-legged corrections are reliable setups for trades in the direction of the trend. When a pullback in a bull market is labeled as an ABC, the first bar that goes above the high of the prior bar is a high 1 long entry. If the pullback continues down for a second leg, like it did in Figure PI. 1, the first bar after that that goes above the high of the prior bar would be a high 2 entry.

#19

The big legs are unstoppable, but the small price action is fine-tuned by some institutional traders who are watching every tick or have programs designed to take trades based on small price movements.

#20

The best way to learn how to read price action is to print out charts and then look for every profitable trade. If you are a scalper looking for 50 cents in AAPL or two dollars in GOOG on the 5 minute chart, then find every move during the day where that amount of profit was possible.

#21

The market constantly exhibits inertia and tends to continue doing what it has been doing. If it is in a trend, most attempts to reverse it will fail. If it is in a trading range, most attempts to break out into a trend will fail.

#22

The AB = CD terminology is not suitable for corrections, so do not use it. Instead, count the legs of a pullback and label each move as a leg, such as leg 1 or the first push, and then leg 2, and so forth.

#23

The two most important concepts in trading are that there is a mathematical basis for everything, and that at any moment when you are convinced of the market's direction, there is someone equally smart who believes the opposite.

#24

All bars should be viewed as either trend bars or nontrading range dojis. It is more important to understand the strength of any trend than it is to spend time figuring out the precise names for particular bars.

#25

A trend bar is formed when the close of a trading day is higher than the open, and it is a sign of strong trending. When a large body is formed after a protracted move or a breakout, it indicates a healthy trend and will be followed by a further extreme.

#26

The market will always try to reverse, but most reversal attempts fail and become bull flags. When speed is critical, the computers have an edge, and traders should not compete against them. Instead, they should choose a time frame where they have time to process the information.

#27

A climax is a critical component of a reversal, and a reversal is a critical component of a climactic bottom. However, traders often confuse the two, believing that a climax is synonymous with a reversal. Every strong bull trend has strong bull trend bars or consecutive bull trend bars, and each is a buy climax but not the first leg of a climactic reversal.

#28

An ideal trend bar is one with a moderate-sized body, indicating that the market trended away from the open of the bar by the time the bar closed. The minimum is a close above the open in a bull trend, indicated by a white candle body.

#29

The strong bulls and strong bears are institutional traders, and their cumulative effect determines the direction of the market. Signs of buying pressure in a bear trend include tails at the bottoms of bars, two-bar reversals or bull reversal bars at the bottoms of down swings, and an increasing number of bars with large bull bodies.

#30

The classic definition of a doji only applies to bars with the close being at the same price as the open. However, dojis can be formed in many other ways, and not all of them are perfect. Close is close enough, and worrying about perfection can only cost you money.

#31

When there is a very large bull trend bar occurring in a bull trend, it may represent the last, desperate buyers buying, either to cover their losing shorts or to get into a very strong bull trend at a very late stage.

#32

The day began with a large gap down in Figure 2. 3, which was a bear breakout. The fourth bar of the day, a bull trend bar, was a setup for a breakout pullback short below that bull trend bar. The moving average gap bar at bar 4 was in a strong bear trend and was a good short.

#33

The opposite of a trend bar is a correction bar, which is usually a bearish indicator. When a large bear trend bar forms in a bear trend that has gone on for 30 or more bars without a significant pullback, it usually indicates a sell vacuum and an exhaustive sell climax.

#34

The market opened higher on Wednesday, but broke down into a trading range for the first several hours as shown in Figure 2. 4. The most important trade of the day was the collapse that began at 11:00 a. m. PST. Once the bar 12 breakout formed, traders needed to consider the possibility of a bear trend resumption.

#35

When a bear trend has gone on for 30 or more bars and is at a support level, both bulls and bears step aside and wait for a large bear trend bar. When this is creat