[davewolfs]

Originally Posted by rangerdoc »

Not necessarily. Brooks warns to be cautious when a second entry lets you in at a better price. They often fail. Often, an H2,3 & 4 are successively higher.

The main thing to remember is that Brooks method is entirely about scalping setups. As such they are highly reliable. Most traders are looking for small swings though & if you use Brooks methods without scalping out a small chunk quickly, you will lose more than you win. You swing a small portion of a position in the hopes that you will catch those larger moves, but the trade is really all about grabbing a very small profit quickly.

Aside from whether or not the entry is considered a high probability trade, when would what I have defined as H1 and H2 not hold?

The reason why I ask is that I'd like to implement some subtle indicators simply to help coach what I see on the charts as I attempt to become more comfortable with this form of trading.

[ACS]

Originally Posted by davewolfs »

Aside from whether or not the entry is considered a high probability trade, when would what I have defined as H1 and H2 not hold?

The reason why I ask is that I'd like to implement some subtle indicators simply to help coach what I see on the charts as I attempt to become more comfortable with this form of trading.

Go back to post #168 on page 21. There is a link to a video file of his first presentation that does a great job of explaining the H & L counts. The most important thing to remember about them is to always be aware of the context in which they appear; not all H/L2s are created equal. The book is full of observations and guidance on that subject and there is no substitute for several readings to begin to assimilate the information.

[davewolfs]

In this example, which bars would be the H2 and H3 between the H1 and H4?

[Dinerotrader]

Originally Posted by thalestrader »

Some breakout traders might suggest that the reason so many feel that breakouts are unreliable is because, as DbPhoenix might say, they tend to see breakouts everywhere, even out "in the middle of nowhere."

The "middle of nowhere" is a dangerous place, and price spends most of its time there. But it is not the whole of price action. Price action is the entire universe composed of both support and resistance levels as well as the gaseous and vacuous middle of nowhere.

A candlestick, a volume spike, or a pullback to a moving average is not Price Action any more than a comet, a moon, or a nebula is the Universe. This does not mean that important information may not be derived from such phenomena, but it would be a mistake to extrapolate a general conclusion about the whole from an observation based on an isolated part.

It would, therefore, be in the would-be speculator's interest to learn the difference between bona fide S/R levels and the the amorphous middle of nowhere. Even if the trader decides that trading breakouts is not for him, an understanding of what constitutes a breakout would presumably help that trader to distinguish between a genuine breakout and a mere hiccup in the middle of nowhere that might be safely faded.

Best Wishes,

Thales

Awesome post Thales. I would be very curious to see what rules people use in determining which way they are going to trade a breakout.

For example:

If breakout occurs at S/R which has held up twice before and is around prior day's high - FADE

IMO, improving your statistics on correctly guessing if a breakout is going to continue or reverse back translates very quickly to increased profitability in S/R trading.

Cheers.

[forrestang]

Originally Posted by imorgan »

Awesome post Thales. I would be very curious to see what rules people use in determining which way they are going to trade a breakout.

IMO, improving your statistics on correctly guessing if a breakout is going to continue or reverse back translates very quickly to increased profitability in S/R trading.

Cheers.

What would be great and beneficial to many (myself included) would be for someone with knowledge on the subject to post a thread about how to trade Support and Resistance.

There are plenty of threads here on the subject, but they are all mostly academic. I have searched for one for some time that is packed full of actual, trades taken based on S/R. They are sprinkled throughout, but there really isn't one EXCELLENT thread about it with many ACTUAL REAL EXAMPLES.

Like a good book, the posts could have a beginning, a middle and a end.

Like, "I picked this support level from (insert time) because I saw (insert rationale here), I then saw price approach this level, and entered (insert entry criteria here and price upon entry) here, and I exited because of (insert exit criteria here)."

I'm sure there are many that could post actual daily charts on WHY they found various levels significant, and WHY they entered trades based upon them, and more specifically HOW they entered the trade. Similar to this thread where there are charts posted everyday, which is probably why it has gotten so much attention?

[thalestrader]

I truly do not mean to divert this excellent thread on Brooks Methods. I do hope the S/R discussion adds some value to those working on learning and deploying Brooks methods.

Now back to my regularly intended post:

Originally Posted by imorgan »

IMO, improving your statistics on correctly guessing if a breakout is going to continue or reverse back translates very quickly to increased profitability in S/R trading.

I am not comfortable with the notion that this is "guessing." Others here on TL have noted that successful trading is organized in terms of probabilities, and I share that preference as well. I sometimes feel as though I have guessed myself into placing a bet, and the moment I feel that way, I reach for the flatten button.

Originally Posted by imorgan »

I would be very curious to see what rules people use in determining which way they are going to trade a breakout.

I do not feel comfortable organizing my trading activity around rules. Rules imply rigidity and universality and absolutes. Rules make it difficult to respond to the particular case. Rules have their place with respect to risk management. But price does not know any rules any trader may dream up. Price action won't follow your rules. You must follow price action.

That being said, here is a reminder from an earlier post I shared on this thread that may help:

Originally Posted by thalestrader »

Here's a hint: Think Highs and lows, higher highs and higher lows, lower highs and lower lows.

Let me give what I think is an excellent real life illustration of what I am trying to communicate. This involves two trades from today, one a small loss, the other a nicely profitable and still open trade.

I posted a chart elsewhere this morning where I was copying my daughter's analysis from her chart of the EURJPY. I repost that chart here (see the first chart). She was stopped into a short trade.

Price initally and immediately moved in her favor dropping nearly 40 +/- ticks from her entry, and then rapidly retraced back to about 30 ticks above her entry point. Price again dropped below her entry point, but held above the low reached on the inital decline. She now had a low, a high, and a potential higher low.

She moved her stop to 3 ticks (to account for the spread) above that reaction high, and doubled the size of the order. If price again retraced that high, she would be stopped out of her short with a relatively small 30 +/- tick loss, and stopped into a new long position.

That is exactly what happened (see the second chart). The dark green lines are her profit targets. As you can see, price has hit her first profit target for a profit on 1/2 of her position of somewhere around 80 ticks. Her stop on her second half is either at breakeven, and she is holding that second half for the second profit target which is approximately +145 ticks from her entry.

I have her draw the swings she is seeing (those are the lime green lines). It is an interesting and useful excercise I learned from an excellent thread over at Forex Factory some time ago, and I thought it would be a good practice for my daughter as she learns to trade Price Action.

One way to look at the issue is this: Highs and lows are the building blocks out of which support and resistance are constructed. Higher Highs and Higher Lows and Lower Lows and Lower Highs is how price both moves from Support to Resistance (and vice versa) and also how Support and Resistance itself is contructed, demolished, and rebuilt, sometimes at new sites and sometimes on old familar ground.

My humble suggestion would be not to guess, and not to think in terms of rules. Keep it simple: Think Highs and Lows, Higher Highs and Higher Lows, Lower Highs and Lower Lows.

How simple is it? For those who do not know, my daughter is nine years old and has been studying price action for about six weeks and is in her fourth week of live trading.

Best Wishes,

Thales

[davewolfs]

Originally Posted by forrestang »

What would be great and beneficial to many (myself included) would be for someone with knowledge on the subject to post a thread about how to trade Support and Resistance.

There are plenty of threads here on the subject, but they are all mostly academic. I have searched for one for some time that is packed full of actual, trades taken based on S/R. They are sprinkled throughout, but there really isn't one EXCELLENT thread about it with many ACTUAL REAL EXAMPLES.

Like a good book, the posts could have a beginning, a middle and a end.

Like, "I picked this support level from (insert time) because I saw (insert rationale here), I then saw price approach this level, and entered (insert entry criteria here and price upon entry) here, and I exited because of (insert exit criteria here)."

I'm sure there are many that could post actual daily charts on WHY they found various levels significant, and WHY they entered trades based upon them, and more specifically HOW they entered the trade. Similar to this thread where there are charts posted everyday, which is probably why it has gotten so much attention?

There are a wealth of examples in the book on trading resistance levels, double tops, double bottoms, lower lows, higher highs, previous high, previous low. Aren't these all forms of support and resistance?

[thalestrader]

Originally Posted by forrestang »

What would be great and beneficial to many (myself included) would be for someone with knowledge on the subject to post a thread about how to trade Support and Resistance.

I've been planning just such a thread. I am working on an opening post to help serve to organize the thread's objectives. Many of the pertinent points that I will include in the opening post have been shared here in this thread.

If no one objects to such a thread, I will get an opening post posted to TL this weekend. I would hope that other S/R traders, whether they swing for the day or swing for the long pull, would share some of their analysis.

Best Wishes,

Thales