The Finance Book Club

Clemmo17 sorry i mistook your nick in the is in the
You have this book you're talking about
I have 7 years looking at charts, my method is different from anything that other traders do., Do not like to use indicators, at most a projection with Fibonacci to know where I will go out at the moment before the trend turn against me, this book should add a lot of knowledge and, especially for me i operate at the moment, do not use late indicators
I hope if I can share it Thank you, even though it is in English, because it is not my native language, but that would not be a problem

I find it interesting because I identified with the market ideology of Al Brooks, I do not like to use indicators, confuse me and end up losing trade opportunities, I prefer to use only Fibonacci as an indicator to know until I will remain in the trade, but my way of using it is different, I only use two lines of fibo because the rest hinders me. I care more about market mechanics and candle fittings.

So far I've been very excited about Al Brooks

There's one. I'm in that part that I identify with. I do not like indicators, I prefer pure charts, NU, they
Sorry my language is not English there must be errors


Al Brooks
Cared more about prices and their movements, funny that I'm the same Thing

Thank you so much for sharing this, it's been very good for me and on top of everything, conforms that my line of reasoning has already been thought of by people before me and who were successful, this reinforces my dedication and conviction that I am in the correct line of thought

Definitions
One thing I’ve learned about trying to make sense of Al Brooks is to not start at the beginning of his books. Start at the end with the glossary. He uses so many custom terms, with no follow-up definitions to assist the beginner that it quickly becomes bewildering. Also, the glossary has the names and some quick definitions of many of the important concepts in the Brooksiverse.

Note - this is not the full glossary; I’ve skipped common terms that I think an experienced (2-3 years) trader will already know, but as with everything else if it’s unfamiliar, look it up.

These are just the patterns mentioned in the first book - ‘how to trade bar by bar’. If I add the patterns from the second book right away it will be even more overwhelming to try to explain everything. Besides which, I want to start testing some of this theory before we get too bogged down in it.

 

1. 2HM The market has not touched the EMA for two or more hours - a sign of a strong trend
2. Barb Wire A trading range of three or more bars that mostly overlap, and one or more is a doji. Only look to fade small bars near its extremes, especially if With Trend
3. With Trend A trade or a setup that is in the direction of the prevailing trend. In general, the direction of the most recent 5-minute signal should be assumed to be the trend's direction. Also, if most of the past 10 or 20 bars are above the EMA, trend setups and trades are likely on the buy side.
4. Breakout Pullback A small pullback of one to about five bars that occurs within a few bars after a breakout. It is a failed failure, since it is a breakout failure that failed. After two failures, the market usually produces a reliable trade. A test of this is a Breakout Pullback Test
5. Climax a move that has gone too far too fast and has now reversed directions to either a trading range or an opposite trend. Most climaxes end with trend channel overshoots and reversals.
6. Doji A candle with a small body or no body at all. Neither the bulls nor the bears control the bar.
7. Double Bottom Bull Flag A pause or flag in a bull trend that has two spikes down to around the same price and then reverses back into a bull trend. Vice versa Double Bottom Bear Flag
8. Double Bottom Twin Two consecutive bars in a strong bear that have identical lows and small or nonexistent tails. Vice versa Double Top Twin
9. Double Top Bear Flag A pause or flag in a bear trend that has two spikes up to around the same price and then reverses back into a bear trend. Vice versa Double Top Bull Flag
10. Down Up Twin A bull reversal setup where there are two overlapping bars that have bodies of similar size, and the first one is a bear trend bar, and the second is a bull trend bar. Opposite of an Up Down Twin
11. Early longs & shorts Traders who buy as a bull/bear reversal or trend bar is forming rather than waiting for it to close and then entering on a buy/sell stop at one tick above its high.
12. EMA Gap Bar In a flat or down market, it is a bar with a low above the EMA. In a flat or up market, it is a bar with a high below the EMA.
13. Failed Failure A failure that fails, resuming in the direction of the original breakout. (aka breakout pullback). Since it is a second signal, it is more reliable.
14. Five-Tick Failure: A trade in the Emini that reaches five ticks beyond the signal bar and then reverses (for example, a breakout of a bull flag runs five ticks, and once the bar closes, the next bar has a low that is lower). It is usually a setup for a trade in the opposite direction.
15. EMA Gap is present when the low of a bar is above a flat or falling moving average, or the high of a bar is below a flat or rising moving average.
16. Gap reversal A gap reversal attempt is present when the current bar extends one
17. tick beyond the prior bar into the gap.
18. Gap 2 If the first gap reversal fails, and then a second attempt to close the gap develops, this second attempt is a Gap 2.
19. High 1, 2, 3, or 4 A High 1 is a bar with a high above the prior bar in a correction in an up or sideways market. If there is then a bar with a Lower High (it can occur one or several bars later), the next bar in this correction whose high is above the prior bar's high is a High 2. Third and fourth occurrences are a High 3 and 4. There are other variations as well. Vice versa for Low 1, 2, ,3 ,4
20. ii Consecutive inside bars, with the second being inside the first. It is often a reversal signal in an overextended market. A less reliable version is when the second body is inside the first body, which is inside the body before it (ignore tails).
21. iii Three inside bars in a row and a somewhat more reliable pattern that a ii.
22. ioi Outside bar with the bars before it and after it having highs below its high and lows above its low. It is often a breakout setup where a trader looks to buy above the inside bar or sell below it.
23. Leg A small trend that breaks a trendIine of any size, and the term is used only where there are at least two on the chart. It is any smaller trend that is part of a larger trend, and it can be a pullback (a Countertrend move), a swing in a trend or in a sideways market, or a With Trend move in a trend that occurs between any two pullbacks within the trend.
24. M2B and M2S A second pullback to the EMA. An M2B is a High 2 in a bull and a buy setup or entry, and an M2S is a Low 2 in a bear and a sell setup or entry.
25. Major trendline Any trendline that contains most of the price action on the screen, and it will typically be drawn using bars that are at least 10 or 20 bars apart.
26. Micro trendline A trendline on any time frame that is drawn across from 2 to about 10 bars where most of the bars touch or are close to the trendline, and then one of the bars has a false breakout through the trendline. This false breakout sets up a With Trend HighILow 1 entry. If it fails within a bar or two, then there is usually a Countertrend trade (a Breakout Pullback from the break beyond the trendIine).
27. Opening Reversal A reversal in the first hour or so.
28. Opposite Twins An Up Down Twin or a Down Up Twin.
29. Pause Bar A bar that does not extend the trend. In a bull, a pause bar has a high that is at or below the prior bar, or a small bar with a high that is only a tick or so higher than the previous bar when the previous bar is a strong bull trend bar.
30. Shaved Body A candle with no tail at one or both ends. A Shaved Top has no tail at the top, and a Shaved Bottom has no tail at the bottom.
31. Shrinking Stairs A series of three or more trending highs in a bull or lows in a bear where each breakout to a new extreme is by fewer ticks than the prior breakout, indicating waning momentum. It can be a Three Push pattern, but it does not have to resemble a Wedge and can be any broad swings in a trend.
32. Signal Bar The bar immediately before the entry bar (the bar in which an entry order is filled). It is the final bar of a setup.
33. Stairs A series of three or more trending swings that resembles a sloping trading range and is roughly contained in a channel. Two-way trade is taking place, but one side is in slightly more control, accounting for the slope.
34. Three Pushes Three swing highs where each swing high is higher or three swing lows where each swing low is lower. It trades the same as a Wedge and should be considered a variant.
35. Tick The smallest unit of price movement. For most stocks, it is one penny, for Ten Year Note futures, it is l/64th of a point, and for Eminis, it is 0.25 points. On tick charts and on time and sales tables, a tick is every trade that takes place, no matter the size, and even if there is no price change. If you look at a time and sales table, every trade is counted as one tick when TradeStation charting software creates a tick chart.
36. Trending Closes/Highs/Lows/Swings Three or more bars where the closes/highs/lows/swings are trending. In a bull, each is above the prior and in a bear, each is lower. If the pattern extends for many bars, there can be one or two bars where they are not trending.
37. Twin Two consecutive bars that share some characteristic (like Up Down bars or Double Bottom bars).
38. Up Down Twin A bear reversal setup where there are two overlapping bars that have similar size and the first one is a bull trend bar and the second is a bear trend bar.
39. Wedge Traditionally it is a Three Push move with each push extending further, and the trendline and trend channel line are at least minimally convergent, creating a rising or descending triangle or Wedge-shaped pattern. For a trader, the Wedge shape increases the chances of a successful trade, but any Three Push pattern trades like a Wedge and can be considered one.

Refer back to this often whenever you don’t recognize a name of something or need to refresh your memory about the definition

At this point I could choose one of the patterns from the books and explain how to identify it and see if it does offer an edge, but which one should I pick? I do not yet know from Brooks' theory which is the most likely to succeed, so I would be selecting at random or based on some feature of the book, like, which pattern gets mentioned most often. Another problem is that without knowing the general principles that control the way that I should select and trade these patterns I would not know if I am making a mistake. Then if the patterns I test and select are actually bad trades, as defined by Brooks, I would be generating false positives and rightly open myself up to criticism from Brook's followers.

Painful though it may be we have to digest a lot more theory and try to understand it before we can start testing.

General Principles
The Trader’s Equation = the probability of success times the potential reward is greater than the probability of failure times the risk.

Breakouts (continuation)

1. The market is always trying to break out and is simultaneously always trying to foil that breakout. This is “the most fundamental aspect of all trading”.
2. Every trend bar (described more in the next section) is a breakout
3. There are buyers and sellers at the top and bottom of every bull and bear trend bar no matter its strength
4. Assessing whether breakouts will continue or fail is “the most fundamental concept in trading, and it is crucial to a trader’s financial success” Deja-vu anyone? Just like every bar is important, nearly everything about trading is fundamental, for Brooks.
5. Breakouts are not just about transitions from trading ranges to trends but can also be buying/selling climaxes reversing into trends in the opposite direction
6. “The most important thing to understand about breakouts is that most breakouts fail.” Now that I look at this I'm not sure it is testable. We'd have to define what 'failure' here means, and I don't recall that Brooks attempts to do so.
7. The market has a ‘strong propensity’ towards inertia, a resistance to change
8. 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, then this price action indicates that the market will ‘likely’ be higher on ‘some’ subsequent bar, even if it pulls back for a ‘few’ bars ‘near term’.
9. If the market breaks out to the upside, and then the next bar is a small inside bar (its high is not higher than that of the large breakout bar), and then the following bar has a low that is below this small bar, the odds of a failed breakout and a reversal back down increase ‘considerably’
10. Brooks spends a lot of words explaining that a new price high is likely also a breakout of a lower timeframe swing high, and the opposite is true for new lows, and swings high and low are usually the highs and lows of higher TF bars, as if this had anything to do with anything. Price action gurus love to waste words.
11. Brooks tells us it’s important to distinguish “a breakout into a new trend from a breakout of a small trading range within a larger trading range” but then proceeds not to explain how.
12. “Smart traders will not buy the closes of the strong bull trend bars near the top of a trading range.”
13. “A ‘strong’ breakout has at least a 60 percent chance of reaching a measured move that is approximately equal to the size of the spike”
14. “Buying the closes of strong bull trend bars near the top of the trading range is risky, and it is usually better to look to buy pullbacks instead.”
15. “In the absence of some rare, dramatic news event, traders don’t suddenly switch from extremely bullish to extremely bearish.” What kind of traders are we talking about here, because retail traders do all the time.

Certain breakouts fail more often than others. Find those trapped traders and you are well on your way. Watch price and observe. Al Brooks is also a futures trader so there will be some translation of what he teaches to FX, the two markets do not move in the same way.

Can you explain what is meant by a 'failed' breakout? At what point do we consider the breakout to be a failure, and what does that look like?

Trend Bars and Doji Bars

1. The market is either trending or not; when it is not it is in a range, which is composed of smaller trends.
2. Bars can then be either trend bars or range (doji) bars
3. Where bull bars mean bulls are in charge, range bears means there’s equilibrium etc.
4. Most useful to think of them as either trend or non-trend bars
5. Brooks will call non-trend bars dojis even though the traditional name denotes a bar that is very short and Brooks’ dojis can be any height (I think); they just need to be ‘ranging’ compared to trend bars.
6. A trend bar is a bar where the close trended away from the open. If the body is small compared to the overall range then there wasn’t much trending action
7. Sideways movements may be present in large bars, but not visible on our chosen timeframe; ignore them as irrelevant.
8. Large candle bodies = strength but “extremely” large bodies after a protracted breakout “can” represent an exhaustive end of a trend. No trade should be taken without more guidance from price action.
9. A series of strong bars will 'usually' be followed by a ‘further extreme’ (breakout?) even if a pullback immediately follows the first move
10. The ideal trend bar has a ‘moderate’ sized body, showing the market was trending away from the bar’s open by the time it closed.

1. Signs of strength:
   1. Bulls can demonstrate stronger control by having the candle body be “about” the size or larger than that of the median body size over the past 5 or 10 bars. I must try to keep an open mind but so far this seems absurd. I can see just on the chart he used above - examples where the trend reversed after the candle bodies expanded. Look at the bar after the first doji on the chart (a large-bodied bull candle) when price immediately fell. I suppose Brooks would have something to say about the large tail of that candle though. Then look approx. 09:15 when the bearish trend reverses after a series of progressively larger bear candles, but then again, the last bear candle was much smaller. And of course he does say this applies ‘in general’ so maybe these are just ‘outliers’.
   2. The open being on or near the low
   3. The close on or near the high
   4. The close at or above the closes and highs of several prior bars
   5. The high above the high of one or more prior bars
   6. The tails being small Ha, called it

2. “If the bar is 'very' large, it 'might' (but might not?) represent exhaustion or a one bar false breakout that is trapping new bulls, only to reverse down in the next bar or two. The opposite is true for bear trend bars.”
3. “Everything is relative and subject to constant reassessment” Sounds random to me
4. Dojis “usually” show equilibrium between bulls and bears and indicate ranges, but a series of dojis with progressively higher closes, and most with highs above the prior highs of the prior bars, and lows above the prior lows of the prior bars, this is indicative of a trend But in the example shown the dojis give way to a new bear trend?

1. With regards to the trend and non-trend (doji) bars, labeling can switch depending on the context and the main purpose in making a distinction is to know if one side is “in control” of the bar or not.

1. Similarly, trend bars don’t always mean the market is trending. Bar 1 of fig. 1.3 is a strong bull trend that broke out of a string of dojis, but there was no follow through. Bar 2 was “bulls trying to protect the low of the bull breakout bar” and was a setup for something called a ‘Breakout Pullback long’ but it was never triggered. When the market fell through its low, the bulls exited again, and after two failed attempts would not get in again without “substantial” price action in their favour. So the market dropped and both bulls & bears would expect “at least two legs down”.

I have not studied Al Brooks material but I will explain what I mean. When you locate a local trend you will see entries that are counter to that trend. Skip the counter trend entry and enter in the direction of the trend. You are anticipating your profitable move will be the resumption of the trend and the stop orders of the trapped losing traders who took the counter trend entries. I believe Al Brooks mentions something about this type of trade in his material but as I said I have not studied it so I am not certain. An example would be an engulfing bar short in an uptrend. When the high of that bar is broken the up move will be swift and powerful due to the stops being triggered above it. Rinse and repeat.

This is such a simple and powerful idea, it really makes me wonder why we need something like Brooks' methods which are numerous and comparatively complex. Still, I shall finish the game, Doc.

Bar Basics, Signal Bars, Entry Bars, Setups, Candle Patterns

1. Setups are patterns that traders believe have a good chance of resulting in a profitable trade
2. Every bar can actually be a setup because every bar either portends a with-trend or counter-trend move
3. Signal bars are always labeled in hindsight after the bar has closed and after the trade has been entered.
4. Brooks means the second after entry, the prior bar (setup bar) = the signal bar, and the current bar is the entry bar
5. Beginners should only enter when the signal bar is also a trend bar in the trade direction
6. Nearly every bar is a potential signal bar but a majority don’t trigger an entry and therefore never become signal bars
7. Best to enter on a stop one tick above or below the prior bar, and if the stop is not hit, cancel the order, and look for a new entry
8. For stocks it’s better to place entry stop a couple of ticks beyond the potential signal bar, because one tick traps are common
9. A bar can be a setup bar in both directions, with stops placed both above and below both extremes (straddle?)
10. Candlestick patterns are as bogus as the mystical powers after which they’re named But I wonder how different his patterns are?
11. The single most important issue is determining if the market is ranging or trending, and the same goes for individual bars

Simple is what works in trading. If you have to think too much or too many variables have to line up perfectly the method won't last.

I always tell myself, calm down, hope that the price of my entry will come and I will enter the trend, the biggest mistake of any trader is the anticipation can be right the analysis done, but your psychological knocks you down!

Signal Bars : Reversal Bars

1. As mentioned, setup bars can be any bar, but a setup bar is not enough to enter a trade
   1. It can only lead to a trade if it is part of a continuation or reversal pattern
   2. Best success rates are from a strong trend bar moving in the direction of the trade
   3. “Waiting to enter on a stop beyond the signal bar requires the market to be going even more in your direction, increasing your odds of success.”

2. However opposite trend bars can be “reasonable” signal bars depending on other price action
3. Doji signal bars or opposite trend bars have higher chances of failure since their “side” of the market hasn’t yet asserted control
4. Always better to at least have the signal bar on your side
5. Attributes of the ‘best’ bull reversal bars:
   1. An open near or below the close of the prior bar and a close above the open and above the prior bar's close
   2. A lower tail that is about one-third to one-half the height of the bar and a small or nonexistent upper tail
   3. Not much overlap with the prior bar or bars
   4. And vice versa for bear reversal bars

6. “When considering a Countertrend trade in a strong trend, you must wait for a trendline to be broken and then a strong reversal bar to form on the test of the extreme, or else the chances of a profitable trade are too small.”
7. Avoid M1 reversal bars, the “majority” fail and become with-trend setups
8. If you lose four ticks on five trades you will never get profitable for the day
9. Whenever the market attempts to “do something” twice and fails it “usually” then tries the opposite - hence why double tops and bottoms ‘work’ Do they? Recall Aronson
10. If a reversal bar “largely” overlaps one or more of the prior bars or if the tail extends beyond the prior bars by only a couple of ticks, it “might” just be part of a trading range. If so, there is nothing to reverse because the market is sideways and not trending.”
11. It “could” also be a trap and become an opposite setup
12. Bars with large ranges but tiny bodies should not be used as a basis for a trade - they are basically one bar trading ranges
13. “If a bull reversal bar has a large tail at the top or a bear reversal bar has a large tail at the bottom, the Countertrend traders lost conviction going into the close of the bar, and the Countertrend trade should only be taken if the body looks “reasonably” strong and the price action is “supportive” (like a second entry).”
14. Smaller bars = less strength (and less conviction for a trade)
15. “In a strong trend, it is “common” to see a reversal bar forming and then seconds before the bar closes, the reversal fails.”
    1. The resulting bar is a strong bear trend bar, and trapped traders will drive price down as they cover

16. Small bodies on (bull) reversal bars
    1. Large lower tail indicates selling was rejected and buyers controlled the bar
    2. However if the bar overlaps prior bar(s) “excessively” then it “might” just represent a trading range
    3. Don’t buy at the top of a flag in a bear or sell at the bottom of a bull flag

1. Fig. 1.5
   1. Reversal bar 1 ‘largely’ overlaps 4 prior bars, showing a 2-sided market, nothing to reverse
   2. Reversal bar 2 is an excellent bear signal
      1. It reverses the breakout of bar 1
      2. It reverses a breakout above the bear trendline

2. Bear flag
   1. In a trading range in a downswing
   2. Sell near the high
   3. Only buy near the low if the setup is ‘strong’
   4. ‘Buy low, sell high’ remains a guiding principle Recall Livermore’s opinion on this; he was not a fan

1. Reversal bars with big tails and small bodies
   1. Reversal bar 1
      1. Breakout below a prior “major” swing low in a “very oversold” market
      2. Reversed below the steep channel line of 8 bars (not shown?)
      3. Doji, supportive of the bear flag idea
      4. A second signal is needed to go long
      5. It comes two bars later when a one-bar-bear-flag fails on the next bar trapping shorts and giving longs the second signal to a scalp up at least

   2. Reversal bar 2
      1. Overlapped about 50% of the prior bar
      2. Did not spike below a prior low
      3. Represents just a trading range on M1

2. “A classic reversal bar is one of the most reliable signal bars, [but] most reversals occur in their absence.” Meaning, I assume, that there are even more patterns we need to know about
3. The strongest signal bars are trend bars in the direction of your trade

Meaning, I assume, that there are even more patterns we need to know about

Yes. There will be other patterns that work. Except when they don't, and these are the exceptions and there will be rules which shall guide the trader. Some rules may only apply in certain circumstances, other rules in other circumstances.

I honestly can't tell if this is serious or masterfully subtle sarcasm. Either way, yes. I agree.

Signal Bars: Other Types

1. Recall that all signal bars without confirmatory price action are meaningless
2. Classic Reversal bars (“some” are two bar patterns)
   1. Inside bar
   2. ii or iii pattern (two or three increasingly smaller inside bars in a row)
   3. Small bar near the high or low of a big bar (trend bar or outside bar) or trading range (esp. With a body in the direction of your trade)

   
   

3. Doji bars are rarely good signal bars - they are one bar ranges
   1. They “can” be decent signal bars near the high or low of a trading range day or as part of a with-trend setup in a strong trend
   2. Selling below a doji is fine if price is at the high of the range, especially a second entry

   
   

1. Outside bars
2. Double Bottom Twin - consecutive bars in a strong bear with identical lows and “preferably” small or nonexistent bottom tails (bear flags)
3. Double Bottom Top (vice versa)
4. Opposite Twins : Up Down Twin Top & Down Up Twin Bottom - consecutive trend bars in opposite direction with small tails and “nearly” identical highs and lows
5. Reversal bar failure
6. Shaved bar - no tail at one or either extreme in a strong trend
7. Exhaustion bar - a “huge” trend bar

See the pattern descriptions on post 144. Have you got enough types to memorize yet? Better break out some flash cards as we are just getting started.

 

1. Inside bars don’t have to be completely inside, either side can be flush with the prior bar
   1. “In general” more reliable when small
   2. More reliable when its close is in the direction of the trade
   3. Inside bars after a big trend breakout “could” be simply pauses, or they could be reversals Yes, likely one of those, because what else could they be?
   4. Reversal is “more likely” if the bar is an inside bar AND a trend bar opposite to the large trend bar
   5. A with-trend inside bar increases the chance of a trend continuation “especially if the market had been trading in that direction earlier in the day” But if it hadn’t it wouldn’t really be a trend would it?
   6. “Good traders make quick subjective decisions based on many subtle factors, and if the process feels too confusing or emotional, it is better to not place an order,”
   7. Confusing trades reduce readiness for clear trades

   
   

2. More potential reversal cases
   1. Inside bars after a swing move, especially if the bar’s close is against the swing
   2. Any small bar near the extreme of a large bar especially if it is a small reversal bar
   3. In ranges, small bar entries should be fades at the extremes, for ex. when a small bar is a swing high but how can you know it is one until the reversal actually happens? Or it follows a bear trendline test, bull trend channel line overshoot

   
   

3. In a trend (even one during a trading range day), a small bar can setup an entry in either direction
   1. If there is a “strong” bull move and no prior bull trendline break, an inside bar near the high of a large bull trend bar or a small bar that extends above the high of the trend bar should only be viewed as a buy setup
   2. “If it is simply a small bar that extends above the high of the bull trend bar, it “might” be a safe long setup if the trend is “strong enough”. “In general”, it would be better to wait for a pullback, unless the small bar was a bear reversal bar, in which case it “could” trap bears, and it “might” make sense to buy on a stop at one tick above its high.” So far it seems like wishy washy neo-random nonsense. Like, go with your gut, dude. Also we are less than halfway through the chapter!

   
   

4. ii pattern
   1. Inside bar follows a larger inside bar
   2. iii pattern is even stronger
   3. After a ‘protracted’ move, especially after a trendline break, a with-trend breakout from ii is ‘often’ just a scalp, and has a ‘good chance’ of reversing (Failed Final Flag)
   4. Countertrend breakout (reversal from Failed Final Flag) ‘often’ leads to a large breakout - the pattern develops in a final flag because it shows balance between bulls/bears, the weaker side having ‘caught up’
   5. “The stop on an ii pattern is beyond the opposite side of both bars (not just the second bar, which technically is the signal bar), but “sometimes” you can use a smaller stop (beyond the second of the two bars instead of beyond both bars) if the bars are “relatively” large Exceptions on exceptions on exceptions

   
   

5. “Although most large trend bars that are With Trend in a trend are strong, if a bar is “unusually” large, it “often” represents a climactic exhaustion.”

So it really is unreliable isn’t it?

1. Small bars on a pullback are with-trend setups in a trend - see bars 1,2,4,6
   1. Even though they are dojis, they are with-trend and “reasonable” shorts

   
   

2. Small bars can also set up countertrend trades if it occurs at a swing low but you can only know that in hindsight!! and there are confirming reasons like a prior trendline break

Outside Bars

1. The high of the current bar is above the high of the previous bar and the low is below the low of the previous bar So this seems to be Brooks’ term for an engulfing candle.
   1. Complicated to read
   2. Can act as trend or reversal bars
   3. If the close is near the middle they are one bar trading ranges
   4. “Almost always” unwise to enter on the breakout of an five-minute outside bar because the stop (at the other end of the larger bar) is too distant
   5. A one-minute outside bar breakout is a good trade But just a few pages ago we were warned off trading on the M1 timeframe.
   6. “If for some reason you did enter a breakout of an outside bar” and the stop is too large, use a money stop instead or reduce volume. Now this is damn foolish advice. One of the first things Brooks told us was to only take the best setups and that’s been Trading 101 from just about every expert we’ve looked at. How can someone with such inconsistent namby-pamby thinking be a good trader?

2. “Sometimes” you have to enter on an outside bar (not the breakout) because you “know” that traders are trapped, especially after a “strong” move.
   1. Excellent as a second entry in a strong reversal from a trendline break or channel overshoot

3. Outside bars in the middle of a trading range are ‘meaningless’
   1. Should not be traded….
   2. ...unless it is followed by a small bar the high or low of the outside bar, setting up a fade

4. Outside bars that are With Trend in the first leg of a trend reversal, where the prior trend was ‘strong’ function as strong trend bars, not trading range bars
   1. Usually lead to two legs after the outside bar
   2. Because the outside bar would have been seen as a failure
   3. The break of the outside bar is a failure of the failure
   4. Everyone agrees on the new direction and there is so much momentum that it gets tested after a pullback, and then a second leg continuation
   5. “When everyone wants the same thing, it will not happen because both sides will start buying even two or three tick pullbacks, preventing a two to three bar pullback from developing until the trend has gone very far.”

5. An inside bar after an outside bar creates the ioi (inside-outside-inside) pattern
   1. ioi “can” be a setup for an entry in the direction of the breakout of the inside bar
   2. In Barb Wire, wait for a better setup

6. The single most important thing to remember about outside bars is that whenever a trader is uncertain about what to do, the best decision is to wait for more price action to develop. I bet he says that about all the bars.
7. Trend Resumption move
   1. A strong trend that goes sideways midday often has a second leg later in the day. This is a Trend Resumption move in Figure 1.23.
   2. Outside bar breakouts in a strong trend usually result in a 2-leg move

8. A small bar near the low of the outside bar, makes a low risk long

Just look at this stretching…

1. Bar 1 is an outside bar - ‘smart traders’ will place shorts one tick below it because ‘enthusiastic longs’ jumping the gun will see the high of that bar as the beginning of a breakout attempt I guess?
2. Bar 2 is the end of the second leg down. Where is the end of the first leg? Two bars earlier where you can see another outside bar. Really??
3. “After a two-legged move from a breakout, the market will usually try to correct.”
4. Bar 5 is another outside down bar, but the market is now ‘basically sideways’ with ‘lots’ of overlapping bars, so it is not a reliable setup for a breakout
   
   Next: a pause to reflect and complain

General Tone
This is how Brooks writes most of his books:

He starts with a chart. He adds numbers to certain swings high and low on that chart.

He tells little stories about each number, explaining how bulls or bears were trapped or how momentum favored one side or the other until something happened to change the dynamic, either returning to equilibrium or handing control over to the other side.

He looks for traditional patterns like double bottoms, tops, and dojis as well as his own constructions, the High 1,2 or Low 1, 2 and inside or outside bars, as well as bull and bear reversals. He qualifies many things with colourful but imprecise descriptors like ‘climactic’, ‘strong’, and ‘major’. These elements produce nearly endless combinations to form a set of tea leaves that Brooks believes he can read. Again, it’s possible he can, but we’ll need to do some frequency testing at the very least.

These stories by themselves don’t really help us to recognize the patterns. It would have made more sense to start with a common pattern and give numerous examples of how to recognize and define it. But it gets even worse later on when he unveils his 'Common Trend Patterns' which so far, strike me as nothing better than an enumeration of the possible things that can happen during a trading day. Not really a method of anticipating what will happen at all. As many commentators have noted, it's easy to trade the left side of the chart, not so much the right.

I'm not sure if I should continue with this, as I personally am losing faith that it is anything more than an elaborate scheme to sell courses. The more complex and confusing the material, the longer it takes to explain, the more books and videos you need to produce to address the confusion, the more profit you make (but not from trading). It is a classic guru scam.

However I also haven't yet proven that it doesn't work, only that I don't find it appealing to my trading style and my BS detector is sounding off.

I don't have any other notes prepared for a different book either, so I guess there's no way out but forward. Still I'm hoping some Brooks fans/experts can reassure me that it's worthwhile continuing down this rabbit hole.

The Importance of the Close of the Bar

1. “A bar usually assumes something similar to its final appearance seconds to a minute or more before the bar closes.”
   1. If you try to jump the gun and enter before bar close, you might gain a tick or so more but “once or twice” a day you’ll lose eight ticks - a bad risk/reward ratio
   2. Entering early With Trend in a strong trend is probably OK, but then if the trend is strong the signal is so reliable, there is no harm in waiting so you may as well wait in all cases
   3. Devoting mental energy to deciding whether to enter early will distract you from more pressing trades.

2. Two common problems on the M5 charts (only M5?)
   1. Most costly - trying to pick a bottom in a strong trend
      1. Price can collapse seconds before the bar closes in an attempt to trap early birds

   2. Getting trapped out of good trades
   3. Rely on your initial stop until the entry bar closes

3. Strong and weak closes
   1. A bear that finishes strong at the end means you should be willing to swing more contracts and hold them for more points than if these bars had weak closes
   2. “It is always better to just watch and trade off one chart because sometimes things happen too quickly for a trader to think fast enough to place his orders if he is watching two charts and trying to reconcile the inconsistencies.”