The Finance Book Club

Sorry for posting in your thread clemmo. I think you are giving a lot of useful info about TA. It works and those who say it doesn't are wrong. I think it is good for relatively short term trading/investing but it is not necessarily riskier than long term. IMO the actual problem with TA is timing entries / exits... it drives me nuts.

Very muVery cool your market view, I really liked the way it is simplistic and explanatory. T

This summary is a gold nugget for beginner and non-beginner traders, regardless of modality.

I've been away from the Internet for a while, I was depressed by problems at work, I still have not dedicated myself 100% to live trader, although I have the capacity for this I have almost 8 years looking at screens and drawing charts, Love charts, mainly naked charts without indicators
When I recover from the accident at work and depression I will enter once and for all in this market that I love so much

I welcome the interruptions! This was never meant to be a lecture series, but I guess it has turned into one. And thanks. I guess we will try to find out just how useful it is. I think it's important to know not just whether something works but how much faith/confidence we should put into it.

I'm not sure if I posted this already, but it reminds me of the balance between reliability and accuracy.
https://www.quora.com/Is-it-better-t...but-unreliable

Notice most of the answers say, they'd rather have a gun that goes 'bang' when you pull the trigger, even if it can only hit big targets.

Thank you Elielson for your kind words.
One theme that emerges from a lot of trading books is the balance between confidence/depression and how dangerous it is to go too far in either direction. The Livermore story shows what happens if you are overconfident and become reckless.

If you believe some of the Jack Schwager stories, and some of the guests on podcasts like Andrew Swanscott's, there are some traders who are just naturally confident, and never have doubts. I wonder though, if they are just good actors, or forgetful, or maybe very lucky. I think it is normal and human to doubt yourself sometimes, and to lose confidence. The Livermore story supports this too. What matters is to be able to return to the path. Success is mostly about forgiving yourself for mistakes and never giving up.

I am reminded of the old Japanese expression "Nana korobi, ya oki". Fall down seven times. Get up eight.

Reading Price Charts Bar by Bar by Al Brooks & Trading Price Action Ranges by Al Brooks
Yes, two books in a single summary, you lucky dogs
A few points of interest, before I begin. First, is that Al Brooks is a former ophthalmologist - an eye doctor. He’s good at seeing tiny details, and visual understanding dominates his worldview (pun). So Al Brooks is all about seeing, and what he sees is patterns, everywhere.

This is in stark contrast to someone like Nassim Taleb who sees patterns nowhere. For Brooks the underlying claim is we have to understand the meaning behind all the patterns and then we can anticipate what price will do. Like many visually-oriented people, he doesn’t seem to be used to speaking with mathematical precision, but prefers to ‘see’ solutions, on a macroscopic scale. This way of understanding could probably be described mathematically if our math was advanced enough and if Brooks was detailed enough, but unfortunately I think he often isn’t.

My position has to be one of skepticism, until we are able to ‘see’ for ourselves if these patterns hold up to scrutiny. It could give us the chance to use some of our probabilistic and statistical analysis methods we’ve learned from Drs. Harris & Gross and Aronson.

Apart from any possible problems with his trading philosophy (which remains to be tested) Is this book any good? Let’s start with the writing. Is it any good?

It is not.

The book has no real structure. Sure, there are chapters, and he generally touches on whatever the chapter is titled but he will also introduce things that have not yet been defined, and then give the definition later, in a completely separate chapter, and do this many times.

The preface for example, the zero-th chapter in the book, is much longer than one would expect from what is traditionally just an introduction, and it contains most of Brook’s basic trading philosophy. The chapter also contains no subheadings. So Brooks comes off a bit like the Jack Kerouac of trading gurus. He hops around topics, leaves one, comes back later, repeats himself whenever he feels the need, all of it in a steady flow. He breezes through a chart, telling us what is in it without explaining how the parts fit together. It’s not until the end chapters of the book that he even tries to put it all together into a system, but even then, much of it is missing, most glaringly a section on exits, of which I’ll write more later.

Also Brooks warns that some chapters are more important than others, for example the most important chapter is chapter 15 for some reason, and that some concepts he describes, like Magnets and Measured moves “are included simply because they demonstrate aspects of price action, but do not offer reliable trading patterns.” It seems to me Brooks is not practiced at curating his broad library of ideas and I suspect this book was not carefully edited. All of this makes a large rambling book more difficult to digest.

In fact the difficulties of trying to write notes for this book were so great, I had to redo them a couple of times because none of the information progresses systematically. I was forced to read the entire book, cover to cover and then decide what I was going to do.

 

1. Give up
2. Read a better book that defines his system
3. Try to create my own ordering system for his wisdom, if any

I opted for b) and read “Trading Price Action Trading Ranges” and it was slightly better organized though still more descriptive than prescriptive.

What about the actual trading advice? Is it any good?

That remains to be seen. So, for your edification, and for my amusement, here is plan c). Rewrite Brooks in an attempt to make sense of it all, if it’s even possible. Call it ‘Clemmo on Brooks’ - a Reboot of Al Brooks Bestsellers for Technical Analysis Aficionados . An attempt to refute or support, once and for all, trading with pattern-detection, or at least trading with Brook’s candle patterns.

General Wisdom

1. “There is no universally accepted definition of price action, and since you need to always try to be aware of even the seemingly least significant piece of information that the market is offering, you must have a very broad definition.” No kidding. I would guess the usefulness of this definition declines in relation to the declining significance of the information.
2. You cannot dismiss anything because very often something that initially appears minor leads to a great trade. Anything - what thing? Very often -how often? Something? -see anything. Minor - how minor ? How do we define that? Great trade - how great? How to define that?
   1. Here is something that bothers me about Brooks and price action traders in general. They speak in vague terms and quantify very little. They are also fond of using comparatives, and weasel words. It’s therefore hard to pin down any clearly false statement. The claims are less audacious, and therefore, informationally porous. However, occasionally Brooks will make a statement that can be tested and when I find them I will colour them blue like this.

3. Every bar is a potential signal both for a short and a long trade.
4. Trading through the rear-view mirror is a sure way to lose money
5. The most useful aspect of price action is watching what happens after the market moves beyond (breaks out beyond) prior bars or trendlines on the chart.”
6. Institutional traders are guided by fundamentals and over time they set the price; price action is what happens as they ‘probe for value’.
7. Price moves up when there is more volume being bid at the current price than is offered, and buyers are willing to pay more than the current price; this is referred to as ‘having more buyers than sellers’ or ‘buyers being in control’ or ‘buying pressure’.
8. “When a profitable setup unfolds, there will be a confluence of unknowable influences taking place during the trade that results in the trade being profitable or a loser.”
9. Institutions will place trades in pieces without regard to the trend as they simply need to fill a certain amount of stock; they are not playing speculative games
10. “Always have a stop in the market in case your read is wrong.”
11. Anything over 100 contracts should be considered institutional volume
12. Brooks spends several pages explaining that institutional traders influence price and will make moves to influence the appearance of charts by introducing a flurry of activity before the bar closes, but it’s not clear how this can be used for trading.
13. “It is very common in strong trends for a reversal bar to totally reverse its appearance in the final few seconds before a 5-minute bar closes”
14. “When trading Countertrend against a strong trend, it is imperative to wait for the signal bar to close before you place your order, and then only enter on a stop at 1 tick beyond the bar in the direction of your trade (if you are buying, buy at 1 tick above the high of the prior bar on a stop).”
15. The best way to learn price action is to print out charts and look for every profitable trade.
16. “Lots of patterns have a 70 percent or better success rate, and many trades allow you to move up your stop from below the signal bar extreme to below the entry bar extreme while waiting for your profit target to be reached,”
17. Try to enter trades that have a good chance of running, and only take partial profits.
18. “Move your stop to breakeven and then let the remainder run. You will likely have at least a couple of trades each week that run to four or more times your initial target before setting up a reverse entry pattern.”
19. Institutions have the best traders, they already know everything this book can teach, at least intuitively
20. “The reason that the patterns that we all see unfold as they do is because that is the appearance that occurs in an efficient market with countless traders placing orders for thousands of different reasons, but with the controlling volume being traded based on sound logic. That is just what it looks like, and it has forever. The same patterns unfold on all time frames in all markets around the world and it would simply be impossible for all of it to be manipulated instantaneously on so many different levels.” Why impossible? And if these patterns can be exploited and they have existed unchanged for so long the market would not be at all efficient, would it? Standard price action patterns are the result of countless people behaving logically.

I googled Al Brooks.

He has a "comprehensive trading course"with 98+ hours of videos.

Any thoughts on transcribing them for your readers?

Hello Clemmo17, I have little habit of reading, I like to read your synthesis, because in addition to important topics of books and stories, still puts your point of view (opinion) before the facts narrated, I have a problem, which is the lack of discipline, procastination, I try to contain it, staying in my goals and reading has helped me, I'm lazy to read many books due to the amount of pages for me it would be like somethin Waste of time, Livermore's story, both what he did and what happened to him over the course of his work in stock choices are xo sequences of similar choices from people like you and me and we should learn from it. I loved the story and above all your opinion, all this added value to my knowledge and makes me calm the depression that affects me, thank you very much!

This makes me smile, LloydOz because I predicted he would! You will see why when I'm done my analysis. It's unlikely I'm going to do that with his videos, esp. since it would be copyright infringement, but without giving too much away, it's likely not a good use of time, either mine or the reader's.

I have the same problem and so maybe this is one reason I try to post here every day, when I can. It forces me to read and to share. Thank you for your support.

Preface (part 1)
This is the first part of the mega-preface, about as big as four 'ordinary' chapters. It's mostly good general advice so I approve of it, but I am not sure this philosophy that 'every bar is important' is going to work out. Let's find out!

1. “The most important message that I can deliver is to focus on the absolute best trades, avoid the absolute worst setups, and work on increasing the number of shares that you are trading.”
2. “I can reverse my opinion about the direction of the market in an instant, I can also reverse my opinion about why a particular pattern works if I come across a reason that is more logical or if I discover a flaw in my logic.”

This flexibility is important in a trader, I agree, but alarm bells should be ringing. If Brook’s logic isn’t fully formed why is he writing a book about it? And if his logic needs to change to match observations, recall Aronson’s warnings on confirmation bias. Or just recall Shakespeare. “Love is not love which alters when it alteration finds.”

 

1. A comprehensive (huge!) guide to price action directed at sophisticated traders
2. Uses some standard techniques of Edwards & Magee (alarm)
3. “I believe that there is something to be learned from every tick that takes place during the day and that there are far more great trades on every chart than just the few obvious ones.”
4. Brooks looks at every bar in a chart and believes every bar conveys information, useful information. “They are all important.”
5. When traders are confused they ignore some data, and yet those bars they ignore have just as much volume as the trade setups they do take.
6. Traders have to understand ‘price action’
7. “I learned from performing thousands of operations through a microscope that some of the most important things can be very small.”
8. “There are no secrets among successful traders.” Really? How could he know that?
9. “The goal for most traders is to maximize trading profits through a style that is compatible with their personalities. Without that compatibility, I believe that it is virtually impossible to trade profitably long term.”
10. Brooks took 10 years to be able to trade profitably
11. “A trader has to work though most obstacles before becoming consistently profitable.”
12. Brooks recounts how he has always been ‘confident to the point of arrogance in many things’ but deep down doubted he would ever find a profitable system he would enjoy using for years.
13. Instead he bought systems, wrote and tested indicators, read books, hired tutors, joined chat rooms, and talked with aficionados, a very relatable struggle.
14. “Most could teach but few if any could trade.”
15. “Usually in trading, those who know don't talk, and those who talk don't know.”
16. Despite the dead ends this effort was successful as it showed Brooks what to avoid.

this reversal pattern haunts me, I call it "the spider" lol

Interesting - what does the name mean, and how do you recognize it? Also what does it foretell?

I think Brooks would call it a 'higher high breakout' but it looks nearly played out. Likely entering some Barb Wire before reversing from a 'Climactic Top' or maybe a Failed Final Flag.

Preface (part 2)

1. “There is a natural tendency to want to buy the exact low and never have the trade come back. If it does, a novice will take the loss to avoid a bigger loss, resulting in a series of losing trades that will ultimately bust his account.”
2. Use wider stops
3. Business schools continue to recommend Edwards and Magee despite the simplistic methods of trendlines, breakouts and pullbacks - because the system works and it always has.’ Extraordinary claims require extraordinary proof though.
4. Edwards & Magee focus on overall trend.
5. “I am a day trader who relies entirely on price action on the intraday Emini S&P 500 Futures (the "Emini") charts”
6. Beginners often believe something more than price action awareness is needed.
7. “Goldman Sachs is so rich and sophisticated that they must have a supercomputer and high-powered software that gives them an advantage that insures that all the individual traders are doomed to failure.” Can you prove they don’t?
8. Beginners are crazy about indicators, but they obfuscate rather than elucidate
9. “Without looking at a chart you can place a buy order and have a 50 percent chance of being right.” All the time?
10. Brook’s biggest problem with indicators is he never fully trusted them. He saw exceptions with every setup. And that’s what this book seems like to me (so far). A catalog of exceptions.
11. “I always wanted every last penny out of the market and was never satisfied with a return from a system if I could incorporate a new twist that would make it better. I am simply too controlling, compulsive, restless, observant, and untrusting to make money long term off indicators or automated systems, but I am at the extreme in many ways, and most people don't have these same issues.”
12. Indicators operate based on price action anyways and several indicators give too much feedback to be acted on quickly
13. Focusing too much on indicators can cause traders to ignore the trend, tempting them to trade countertrend and lose money.
14. “The most common successful reversals first break a trendline with strong momentum and then pullback to test the extreme, and if a trader focuses too much on divergences, she will often overlook this fundamental fact.”
15. “A divergence in the absence of a Countertrend momentum surge that breaks a trendline is a losing strategy. Wait for the trendline break, and then see if the test of the old extreme reverses or if the old trend resumes.”
16. Avoid divergence, combinations of time frames, wave counting, and fibonacci retracements and extensions, as these are extraneous to good price action setups
17. Over-analysis causes traders to waste too much time, and miss setups
18. However a simplistic ideology that ignores data is also foolish.
19. A single time frame chart works best for Brooks.
    
    I have been a little bit critical so far but these last points I like very much.

no it's like a cup and handle, without the handle.

Preface (part 3)

1. Price action is more important than any indicator, than any other info
2. All you have to do is “piggy back” off the trades of institutions. You don’t need their software or analysis
3. A single 20-bar EMA is the only indicator, and often not used
4. Sometimes volume on M1 charts is minimally useful but Brooks never uses it as he trades on M5 charts
5. “An unusually large 1-minute volume spike often comes near the end of a bear trend, and the next new swing low or two often provides profitable long scalps. However, this is simply an observation; it is far too unreliable to be a part of your trading and should be ignored.” Then why mention it at all?? It seems that filtering out extraneous information is a weakness of Mr. Brooks.
6. “As a trader, I see everything in shades of gray and am constantly thinking in terms of probabilities.”
7. “Close is usually close enough.” “in trading if something is “almost” a reliable pattern, it will “likely” yield the reliable result”
8. “Everyone wants concrete, clear rules, or indicators, and chat rooms, newsletters, hotlines, or tutors that will tell them when exactly to get in to minimize risk and maximize profit, but none of it works in the long run. You have to take responsibility for your decisions, but you first have to learn how to make them, and that means that you have to get used to operating in the gray fog.”
9. Anything, no matter how unlikely, can happen.
10. Watching news is a waste of time as there is always a dual interpretation of whatever happens (for ex. Fed rate cuts)
11. Only look at the chart. Other information is a distraction.
12. Avoid tipsters, friendly or professional
13. Don’t discuss trades with other traders, as they might influence your thinking
14. If James Galway (musican) offered Yo Yo Mah (musican) a flute should he accept?
15. “Price action is the only instrument that I want to play and I strongly believe that I will make far more money by mastering it than by incorporating ideas from other successful traders.”
16. “Any trend that covers a lot of points in very few bars, meaning that there is some combination of large bars and bars with very little overlap, will eventually have a pullback. These trends have such strong momentum that the odds favor a test of the trend's extreme after the pullback and usually the extreme will be exceeded, as long as the pullback does not become a new trend and extend beyond the start of the prior trend.” This sounds clever but think about it. What other possible outcomes are there? Either price will exceed maxima or decline below minima unless it carries on sideways forever which is highly unlikely. Brooks is actually saying nothing here, which is a danger sign of charlatanry.

Preface (part 4 of 4)

1. “In general, the odds that a pullback will get back to the prior trend's extreme fall ‘substantially’ if the pullback retraces 75 percent or more.” An almost testable hypothesis.
2. If you cannot figure out what the chart’s telling you, do not trade and wait for clarity. Once you have it you must trade, assume the risk, follow your plan.
3. Do not drill down to 1-minute charts and tighten stops, as you will lose.
4. “The problem with the 1-minute chart is that it tempts you by offering lots of entries. However, you will not be able to take them all and you will instead cherry-pick, which will lead to the death of your account.”
5. “It is extremely difficult to consistently do something simple, but in my opinion, it is the best way to trade.” In my opinion this sounds like something a robot should be doing if it’s so simple.
6. Some aspects of trading are similar to gambling - one of these being that a losing game can win often enough to trick you into thinking it can be beaten.
7. Most successful traders are more like investors; they just have more leverage and lower time frames.
8. Here Brooks mentions ‘Monte Carlo’ techniques where you double or triple your position size at every loss in order to recoup losses on your next inevitable win. This is actually called a ‘martingale’ strategy. Such an elementary error from a trader with 10 years experience is odd.
9. Four losses in a row on an M5 Emini chart is “rare” says Brooks and he can’t recall seeing ‘seven or more’.
10. The emotional duress of trading with martingaling means that while it can work in theory it doesn’t work in practice.
11. Crashes are rare on daily charts, but common on intraday charts
12. It is better to think of them as simple and common chart patterns.
13. “If you can get passed the emotion, you can make money off crashes because with all charts, they display tradable price action.”
14. On intraday charts there’s no point in even considering these moves ‘crashes’ as they are so common.
15. The most useful tools for understanding price action are trendlines and trend channel lines, prior highs and lows, breakouts and failed breakouts, the size of bodies and tails on candles, and relationships between the current bar to the prior several bars.”

Ok, so some solid advice (avoid waves, fibs, etc) cancelled out by the same advice (use trendlines and channels, and the size of candlestick’s tails), with some solid advice about breaking local extrema and focusing on a single timeframe chart, and some danger flags on the field with regard to vague statements, mostly.

I think the economy is important.

Just look at the sp 500, dax or midcap 400. They performed well historically, IMO because these economies are strong which makes investors confident.
I mean you don't want to invest in a weak economy unless you are very diversified. Most investors are not.

Buffett said "never bet against America".

Some events and news also affect the market.. take the coronavirus for instance.

btw I was talking about the stock market. IDK.. maybe FA works in the FX market too.

Good evening trade, depending on your time zone, i will take a while to interact because of my depression treatment, but I always follow Clemmo77 in his synthesis of long books and his thousands of pages of which I would not have the patience to mine the


DGod quide from you and good business