The Finance Book Club

This is very wise, I think. It is important to focus on what you are comfortable with.

However I do think that it is important to read widely to test truths that you may hold close - within reason (as I've mentioned, I tend to give up if I know its not going anywhere productive - then I skim, or it just clutters my remaining three neurons and they start fighting).

Only by doing so is one enabled to reach the conclusion that you did - that this is maybe all very good for someone, just not me, not ever.

I've been trading index futures since 2013, I learned the hard way possible because at that time there were no brokers with demo account
I broke it several times and didn't give up my goal as I felt uncomfortable At work, Faced with so many searches for a perfect Setup, it took me a while to realize that the answers to my questions were within myself, and I was looking for the answer in the places I would never find, today I still work in a private company, but I was about to leave it and continue my life operating in the futures and forex market, but I suffered accident in my work , Fractured my knee, and i went into a state of psychological depression, but thank the great God I am recovering and soon
I will be better to devote myself 100% to trade, I already have my intimacy with the market, my methodology is based In my performance and personal development
A advice I can give any beginner is, seek the answers within you for your questions, assemble your own operational based on what you have learned (the basics)
Stop jumping setupts, cool on what you've basically learned this and screen time will give you all the answers along with your development Personal and Spiritual.
God bless you.

Good advice all around.
Ok, here is the last bit of theory then, before I do some counting. I have to do it, as Lloyd says to 'test the truths' that we hold close. This is important to avoid blindly following others. As Elielson points out, only the answers that we uncover ourselves hold the key, and I think the reason is because it's only these answers, the ones that we find on our own that we can truly put our faith in when the stakes are high, when emotions are ruling our thoughts. Then we have to fall back on the trusted methods that are burned into us from experience.

It's why firefighters train so hard, because when you are surrounded by fire, you cannot think your way out of even simple situations, only instinct from training works.

Believe it or not these are different (more general) types than the ones in the ‘Pattern Definitions’ section. I’m detecting a trend.
General rules

1. Take every with-trend setup
2. Trade counter trend only after a trendline break
   1. Only if there is a ‘good’ reversal bar,
   2. Only if you can still take every with-trend signal
   3. Scalps only
   4. 2-3 max per day

3. If you are missing with-trend setups, stop trading countertend
4. Swing the with-trend trades even if you get stopped out.
5. A single swing can be as profitable as 10 scalps
6. If you cannot see one of these patterns setting up assume a range day and look for entries in both directions
7. A range day can turn into a trend day or vice versa at any time, don’t question it, just accept it and trade it

Trend from the Open

1. “Usually the strongest form of trend pattern” So maybe we’ll focus on it. The strongest pattern with the strongest fundamental setup.
2. The market forms an ‘extreme’ within a couple of bars and then trends all day, closing at or ‘near’ the ‘opposite extreme’ (?)
3. Added credibility with a gap open
4. Break-even stop gets hit in a ‘majority of cases’ but successes will balance out
5. ‘Usually’ there is follow-through the next day within an hour or two so enter long after a pullback

1. We see that the market rose up and broke the swing high at bar 1
2. The first leg up was ‘climactic’ with small tails and little overlap Yeah, but starting where?? It looks like ‘barb wire’ for most of the time between 2 and 3.
3. “The correction to Bar 3 broke a trendline and made a reversal after the next leg up more likely.” Not credible to me.
4. Bar 4 broke above a bull trend channel line, and then was followed by an inside bar
5. Bar 5 was the first bar of the day and opened on its high tick. Brooks now says we could switch to an M1 chart to find an entry, the dirty flip-flopper.
6. Or wait for an M5 setup, bars 6 and 7 are examples
7. The best trends are difficult to trade because all the With-trend entries look weak, with many small pullbacks
8. A two-point money stop is the best to use in a strong trend when ADR is <15 points
9. “An outside bar that traps traders out of a trend often leads to a strong trend leg as traders are forced to chase the market up”.

Reversal Day

1. Some of the ‘strongest’ trends begin midday, starting as range breakouts or trend reversals
2. Large trend bars, little overlap, as usual
3. Enter quickly even if the new trend looks done

Trend Resumption Day

1. Begins with a Trend from the Open, then price goes sideways for 2-3 hours and then a breakout with the original trend again
2. The ranging period ‘often’ has Three Pushes
3. Don’t be lulled by the quiet action of the midday period, be ready to enter when the trend re-starts

Not convincing to me so far, but next - the real test.

[quote = clemmo17; 13220006] Bons conselhos para todos. Ok, aqui está a última parte da teoria, antes de fazer algumas contagens. Eu tenho que fazer isso, como Lloyd diz para 'testar as verdades' que mantemos perto. Isso é importante para evitar seguir os outros cegamente. Como Elielson aponta, apenas as respostas que descobrimos são a chave, e acho que a razão é porque são apenas essas respostas, aquelas que encontramos por conta própria, que podemos verdadeiramente colocar nossa fé quando há muito em jogo, quando as emoções estão governando nossos pensamentos. Então, temos que recorrer aos métodos confiáveis que são queimados ... [/ quote]

I thought I knew everything, something went wrong, then I went back to the beginning, I wondered what this system exists and for whom it was created, are simple questions, are examples that awaken the inigma, the unknown within us, we will never know if success worked there, if we give up before trying the important thing is you know yourself, your fears, your limits, fury, joys ... Intimacy with the market is gratifying you realize that for all the questions the answers were there, inside you!

Thank you Clemmo17 considerations

Well said!

I got scooped! I've been posting as 'Evidence Based Fx' since 2019 and then in May these guys swiped my Facebook page.
https://www.facebook.com/evidencebasedfx/

What I don't get is why my facebook page has this crappy URL
https://www.facebook.com/Evidence-ba...2319178091150/

and they got that sweet shortened URL with no digits? If anyone understands Facebook, please let me know.

It's not really worth trying to fight for it as I don't have much to gain or lose by it. On its own the term 'evidence-based' is overused, and more of a fad than a rigorous standard.

No updates for a while as FF was down whenever I checked. I heard they were changing servers, but no notifications by email or on the homepage, so I don't know what it was about.

In any case the outage was well-timed as I have to find all the examples Brooks lists for specific patterns to see if they're well defined.

First, I think it's safe to say I can dismiss the 'trend patterns' as being unhelpful. They are not well-defined, nor does Brooks mention them much after defining them, like a neglectful parent abandoning their children after birth. One exception being the 'Trend From the Open' which I might examine later.

I already defined (or tried to) the Trend From the Open, Reversal Day, and Trend Resumption Day. However there is also 'Trending Trading Range Days' (if you can believe it), 'Tight Channels', 'Spike and Channels' and 'Stairs'. Then there are patterns that define Pullbacks (as opposed to trends). In other words, it just never ends. Since every bar is unique and important, every situation that can possibly occur needs its own name. I call this madness.

Instead of worrying about all that, I'm just going to pick a pattern, one of the most commonly cited ones, and I'm going to try to define it by citing lists of examples that Brooks uses. This is time-consuming, but I'll quickly know if it's paying off or if it's all just smoke.

The first pattern I'm going to examine is the 'High/Low 1 or 2'. If you recall, a High 1, 2, 3 or 4 is a bar with a high above the prior bar in a correction during a bull trend (or range) while a Low 1, 2, 3, or 4 is a bar with a low below the prior bar in a correction during a bear trend. The first such bar is the 'High/Low 1'. Then, if there is a bar with a lower high (any time later), the next bar in the correction whose high is above the prior bar's high is the 'High 2', and vice versa for the 'Low 2'.

The question I'm going to ask is if there is a statistical advantage in trading after 'High 1 longs' or 'High 1 buys' and so on. The difficulty is that a High/Low 1 or 2 or whatever is not by itself necessarily a good entry according to Brooks, so I'm also going to try and find and enumerate all the instances/exceptions and see if I can come up with a complete definition and then test the stats, starting with his own e-mini 5 minute charts, and then try some FX charts. I will have to come up with my own 'common sense' exit rules though, as Brooks doesn't seem to care about them.

In the chapter on Day Trading, Brooks advises always having two reasons to trade. He then gives a list of reasons. Some of these are:

• Reversal bar
• Good signal bar pattern
• EMA pullback in a trend, especially if two legged
• Breakout Pullback
• Breakout Test
• High/Low 2 or 4 (there must have been a prior trendline break if fading
a strong trend)
• Failure of anything: Prior High or Low, flag breakout, reversal from an
overshoot of a trendline or a trend channel line, 5 tick failure

But there are two situations when you only need one signal to trigger a trade
"Anytime there is a strong trend, you must enter on every pullback that does not follow a climax or failed flag breakout, even if the pullback is just a High or Low 1."

“The only other time that only one reason is needed to enter a trade, whether in a trading range or a trend, is when there is a second entry. By definition, there was a first entry, so the second entry is the second reason." Although I’m not sure what makes something a ‘second’ entry not just a new ‘first’ entry? I assume it has to be because the first entry failed?

In any case, this gives us enough to attempt to define and test one entry signal. We are going to see if entering on a High 1,2 or Low 1,2 after a pullback, in a strong trend, as long as it’s not a ‘climax’ or a ‘failed flag breakout’ is statistically better than entering randomly.

I’m sure you noticed a couple of problems with this though. First, we have to define what is a ‘strong’ trend. We also have to define a pullback, a climax and a failed flag breakout. Sometimes Brooks is helpful and sometimes less so in this regard.

Strong Trend

1. "Most markets are in a strong trend maybe 20 percent of the time or less."
2. "most traders will not recognize that a day is trending on a 5-minute chart until after the first hour or two"
3. “It is important to swing part of every With Trend entry on a strong trend day, even though that means that sometimes your breakeven stop will be hit.”

Bars 5 and 6 are part of a ‘strong trend’ according to Brooks.

 

1. “The best trades are on strong trend days where most of the bars are on one side of the EMA and there are only a couple of EMA pullbacks during the day.”

Brooks is talking about countertrend entries here. So I assume this is a ‘strong trend’.

 

1. “In a bull trend, buy High 2 setups even if they are at the high of the day, and in a bear, sell Low 2s.” That’s the plan.
2. “However, the market is in a trading range for the vast majority of the time.”
3. “The market has not touched the EMA for two or more hours. ...it is a sign of a strong trend.”
4. “A series of strong trend bars is the sign of a healthy trend and will usually be followed by a further extreme, even if a pullback immediately ensues.”
5. “a trade is most likely to succeed if the signal bar is a strong trend bar in the direction of the trade.”
6. “In a strong trend, it is common to see a reversal bar forming and then seconds before the bar closes, the reversal fails.”

Brooks tells us there is a strong trend in this chart, but doesn’t say on which bar we would be sure that the trend is ‘trending’ and ‘strong’.

1. Both of the days pictured in this diagram were ‘strong trend days’ says Brooks, “with one extreme near the open and then no EMA pullback for over two hours (2HM days).”
2. “There are many characteristics of strong trends. The most obvious one is that they run from one corner of your chart to the diagonally opposite corner with only small pullbacks.”

“Here are some characteristics that are commonly found in strong
trends:
• Big gap opening.
• Trending highs and lows (swings).
• No Climaxes and not many large bars (not even large trend bars). Often,
the largest trend bars are Countertrend, trapping traders into looking
for Countertrend trades and missing With Trend trades (the Countertrend
setups almost always look better than the With Trend setups).
• No significant trend channel line overshoots, and the minor ones result
in only sideways corrections.
• Failed Wedges.
• 2HM.
• Few if any profitable Countertrend trades.
• Small pullbacks (if the Emini's average range is 12 points, the pullbacks
will all likely be less than 3 or 4 points). You find yourself waiting
through countless bars for a good With Trend Pullback, and one never
comes, yet the market slowly continues to trend.
• Sideways corrections after trendline breaks.
• Repeated High/Low 2 and M2B and M2S With Trend entries.
• No two consecutive trend bar closes on the opposite side of the EMA.
• Bars with no tails or small tails in either direction.”

Is that sufficient to define what is meant by a ‘strong trend’? In fact I think it is more than sufficient, making up with bulk what it lacks in concision.

Pullback
Ok, next, what is a pullback, according to Brooks? Here, he is kind enough to define it for us, formally.

1. “A pullback is a temporary Countertrend move and is part of a trend, swing, or leg, and does not retrace beyond the start of the trend, swing, or leg. For example, a bull pullback is a sideways to downward move in a bull trend, swing, or leg that will be followed by at least a test of the prior high.
2. Pullback Bar :
   A bar that reverses the prior bar by at least one tick. In an uptrend, it is a bar with a low below that of the prior bar.”

That’s pretty clear! And can be easily defined and spotted. Do I even need to provide a diagram? I guess not.

What about a ...

Climax
Recall the definition from the glossary:
“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.”

Well this is much more problematic because it’s vague. ‘Too fast’? ‘Too far’? That could mean anything. How and where does Brooks define ‘climaxes’?

“A climax is usually followed by a two legged correction that lasts for many bars (at least an hour on a 5-minute chart).”

“A High 2 alone is not a setup, especially after a climax top and possible major reversal down.” This is exactly why I’m taking the trouble to try to understand what it is meant by ‘climax’ and how to spot it. It seems to me that these are more important than simply spotting High/Low 2s.

‘Parabolic climaxes’ are caused by ‘emotional behaviour’.

Trends can end in ‘climaxes’ such as trend channel line overshoots. Which I figured was a smaller type of move, which means even minor price action can be ‘climactic’? But maybe trend channel overshoots are more significant than I was giving them credit for.

In this chart Brooks points out the ‘20 or so’ bull trend bars from bar 1 to bar 2. This is ‘unusual behaviour’ and it is ‘not sustainable’ and therefore it is ‘a form of climax’. There are different forms??

Climaxes generate ‘momentum’ in the opposite direction.


“A large bull trend bar breakout from a ‘Final Bull Flag’ is a climax as seen in Figure 8.5. Unfortunately we haven’t looked at bull flags. Brooks states that “Bar 3 was an outside bar down. Smart traders would not be buying in here since the market was attempting to reverse from a Final Bull Flag and they are expecting two legs down.” But to me it looks like a bullish trend all the way. What’s ‘flaggy’ about bar 3’s price action?

Climaxes are much more common on smaller time frame charts. For example, a 1-minute chart often has several each day, whereas a 5-minute chart might only have a couple each month.
Wow! That is not what I thought. In fact it makes zero sense to me that there would be so much difference between M1 and M5 charts, even on an index like the emini.

“A climactic reversal is a strong momentum move (a "spike") with a series of big trend bars that often overshoot a trend channel line and then reverse. The word "spike" implies that there was a strong move in one direction and then immediately afterwards, a strong move in the opposite direction. The reversal move is smaller; otherwise instead of a Spike and Trading Range, there would be a clear and strong reversal without the hesitation that takes place in the trading range.”

“When a climax pattern fails to form any Countertrend momentum, then assume that you read the market wrong and are looking to trade in the wrong direction.”

“A Wedge is a type of climax reversal, so climactic behavior is needed for it to be effective.”

A climax will form a ‘convincing’ high or low of the day. Convince me with numbers, not adjectives.


Here Brooks points out the ‘strong close’ into bar 1 and that bar 3 was “a possible Higher Low after a climactic close, and after a climax (the strong bear into the close had virtually no pullbacks and since it was likely not sustainable, it was therefore climactic), there is often a two-legged Countertrend Move.” Are you convinced? Not me.


Here Brooks points out that bar 2 is ‘not a climax’ but doesn’t explain how he knows. I guess only because it didn’t have a 2-leg correction? However bar 5 was “a Three Push High short, so two down legs should follow
(a climax usually is followed by at least two Countertrend legs).” This seems to me like nothing more than reading the left side of the chart. It’s easy to see a ‘climax’ after it’s long over.



This one is more convincing. Brooks is describing the action from bar 16.
“However, the steepness of the second leg and the size of the bear trend bars imply that there is a high probability of this being a sell climax, which usually is followed by at least a two-legged Countertrend rally that lasts for far more bars than most would expect.”

So is this sufficient to recognize and detect climaxes? I would say not. Brooks has had ample opportunities to be clearer. He already stated how trendlines get steeper as trends reach their culmination so why not define climaxes by the degree of steepness? Brooks' reluctance to measure anything is a huge red flag.

After years of trading I think I know what he is trying to say (I suspect he depends on most traders feeling like this) but I would use a different method of determining whether something is a peak or a trough. Unfortunately that would require bringing in apparatus external to Brook’s teachings and that is not cricket. So for now, we have to live with the possibility that every failed signal in our test could be defended as a missed ‘climax’ or ‘climactic reversal’.

Failed Flag || Failed Final Flag || Failed Flag Breakout
This is the final component we need to define to be able to create a ‘master’ definition for our first Brooksian signals.

Brooks uses these terms interchangeably, I think? However he distinguishes these from ‘double top flags’, and ‘final bull/bear flags’. The main distinction seems to be the ‘failure’.
Of course this is only something that can be known after the fact. I don’t detect anything particularly ‘flaggish’ about the examples he cites. Basically, any pause in trend where the trend then reverses is a ‘failed final flag’.

Do you see the problem? It is impossible to avoid these, as there is no warning sign apart from the trend stalling. I suppose that will have to do.


Speaking about bar 4: “a Failed Final Flag (an ii flag) and an EMA Gap Bar short setup, and therefore a reliable signal.”

“After a protracted move, especially if there has been a trendline break, a With Trend breakout from an ii pattern is often just a scalp and has a good chance of reversing before or after the profit target is reached (a Failed Final Flag).”


“Bar 5 is a one tick failed breakout of the top of an ii, setting up a Failed Final Flag, which was reversed by the Bar 6 reversal bar.”

One thing I notice is Brooks often says ‘could lead to a failed final flag’, or ‘possible failed final flag’. Despite the ‘finality’ of the flag, even he is unsure if they are final or not!


“Bars 7 and 9 were Micro Trendline false breakout short scalps (Low 1 setups) and both were quickly followed by buy scalps as the failure failed, creating effectively a Breakout Pullback buy (even though both were Lower Lows) and a Failed Final Flag (the breakout from the one bar bear flags of Bars 7 and 9).” Did you get that?? Could you explain it to me, please?

“After a series of winning trades, you should be suspicious of renewed strength without first seeing a larger pullback, since this strength might be a trap setting up (like a Failed Final Flag).”


“Despite the bear strength in the first half of the day, the bulls broke several bear trendlines and were finally able to move the market up after the stop run plunge down to Bar 11 that formed a Double Bottom (and a Failed Final Flag reversal).”

I guess that’s enough. I don’t get it and I’m not sure Brooks does either. Please tell me what I’m missing.

You are wise of you learn from everyone but only if you know what is right or wrong for you. As it may be applicable in another person's ideas it may not necessarily work out for you. You therefore can learn from everyone but you have to consider the fact that your own thoughts also matter a lot. You can always tell if what you are being told is effective or not based on what you think should be after conducting an analysis over what is the area of discussion. You do need to learn and you can learn from a lot of sources. Just make sure that you choose the right source as not all of them are. Get that.

All right, can't sleep, election night is like my Super Bowl. And we are all tied up going into triple overtime.

Defining a signal
So far we know that we need to look for a trend.
1. Define a trend as anything that is clearly above/below the EMA (recall Brooks uses the 20 period EMA on M5).
2. And that has had a sequence of at least three (3) bars of higher lows, or lower highs. That number is arbitrary, and it's mine as Brooks never actually gets that specific.
3. Then we need to look for a pullback that does not retrace beyond the start of the trend, swing, or leg
4. And that tests the prior high or low...
5. As long as it's not following a 'climax' or a 'failed final flag'. Since we can't seem to be sure what those are, we'll ignore anything but the most extreme climaxes, which I'm going to define as an ATR move that is 50% taller than the 20 period ATR. That's my definition, not Brooks', since he seems to hate committing himself to specifics. I don't know how we can detect a 'failed final flag'. I might be dumb, but I don't get it from the definition or the few examples Brooks mentions. So I'ma gonna ignore it.

Once all those conditions are in place, we'll look for a High 1, 2, 3, or 4 or Low 1, 2, 3, 4, and immediately place a pending order at one tick above/below the signal bar after its close and a stop loss one tick above/below the signal bar (opposite side) and after the entry bar closes, tighten to one tick above the entry bar. All of this is Brooks' own protocol.

Before I look at historical examples I'll look at some definitions of high 1,2 low 1,2 etc. so that I get good at seeing them.

Oh, and I should mention how I'll handle exits. Brooks only mentions the word 'exits' once, and all his uses of the word 'exit' are used in descriptions of hypothetical trades taken by other parties (bulls and bears) not us, the trader. Just to be clear, amazingly, Brooks doesn't describe or seem to care about exits. Where to exit is up to you, thanks for buying my book.

One thing Brooks does say is that it takes a win of six ticks to scalp 4 ticks of profit on the emini. So I'll start there, with a six tick profit target, and consider the benefits of trailing.

High 1 Examples


Bars 4 & 5 are High 1 longs



Bar 7 is a 'failed failure' and a High 1 micro trendline long



Bar 1 is a high1 but a bad entry (despite its future success?) because there was no bull trend bar setup to reverse the long bear run.



Bar 3 is a microtrendline long



Bar 5 is a high 1 long, an 'outside up bar that tested the EMA'



Brooks calls bar 9 a High 1 but look at the definition of " a bar with a high above the prior bar in a correction". Does Brooks need glasses? That bar is not above the previous bar, no part of it. Is this just carelessness? Is the definition different from what he wrote? And considering the resulting price action it's not even worth calling a High 1. Bizarre.

The bar after bar 11 is a High 1 rising above the 'micro trendline false breakout'.

Incidentally I just did a casual test of this as it stands and it works extremely well (in a reliably trending market), which makes sense when you realize that what we're doing is simply 'buying the dip'. This is in tune with Livermore's notion of 'buy rising stocks and sell falling stocks' while scalping a temporary deviation from the mean trend fits in with cyclical theories which I haven't talked about yet.

Questions that occur to me immediately:
Was it worth all this effort simply to come up with a method to enter on a break of a prior level? In other words, is the added complexity of Brooks' method worth the effort? And does Brooks' simply get himself into trouble with all his other techniques or is it worth pursuing the rest of them?

I will continue my cataloguing of examples for posterity and then do a more formal evaluation.

Visual backtest

Rules:

We'll use a fixed 'tick' target. I said pips above, force of habit, but measured in ticks, as per Brooks' suggestion.




Like most trend-following systems, this improvised system based on a Brooks pattern performs poorly in ranging periods




But it performs well in trends, as long as you re-enter frequently to make up for the periodic losses caused by stops that are too tight. The rule to place a stop at the low or high of the signal bar seems too strict. Likely this system would perform even worse on an instrument without clear trending behaviour.




Another range, another headache. Also, the requirement for 3 bars before entering ‘trend mode’ is causing us to miss some good trades. This is probably why Brooks doesn’t have such a restriction. The problem is, without it, we’d enter whenever price is above or below the EMA, causing even more range trades to be taken.




Mostly trending price action, but a very mixed result due to our too-tight stops.




But then we are rescued by a beautiful trend. Even with fixed profit targets this would probably make up for our previous losses, and if we had a good system for holding (swinging) winning trades it would be even better.

The astute reader will recognize though, that most of this is not dependent on where we entered, it depends on where we decide to exit. Since Brooks doesn’t tell us what we need to know, we have to make it up for ourselves.

Give up while you still remain sane. It is a never ending rabbit hole.

A bit like snowflakes - they share the same characteristic of finite area, but have infinite fractal curves, many of which will be similar and so the human eye seeks patterns.

Yes, I think you're right. It's not really worth doing a more in-depth test or to examine another pattern. Unless someone disagrees or chimes in to support Brooks I'm just going to move on to the next book...which based on the voting is 'Naked Forex' - by Nekritin & Peters.