Futures I Trade Show & Brooks Book

[thalestrader 14]

Brooks rarely trades breakouts, they are unreliable; over the long run you will lose trading breakouts.

 

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

[davewolfs 10]

Would it be correct to say that a H1 is the first bar that is higher then the previous bar after a swing high has occurred and a H2 is the second bar that is higher then the previous bar but lower then the H1. Also, a leg is reset once a swing high occurs that is higher then the H1.

[rangerdoc 13]

Would it be correct to say that a H1 is the first bar that is higher then the previous bar after a swing high has occurred and a H2 is the second bar that is higher then the previous bar but lower then the H1. Also, a leg is reset once a swing high occurs that is higher then the H1.

 

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.

[davewolfs 10]

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 10]

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 10]

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

 

[Dinerotrader 10]

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 10]

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 14]

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:

 

 

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.

 

 

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:

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 10]

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 14]

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

[BlowFish 10]

There are some gems here and there. Take a look at some of DB's posts the blog and Wyckoff corner are well indexed so no need to trawl through stuff thats not of interest. Thalestraders posts are very good and as a relatively new member there are not millions to wade through. There was a thread in the forex section something along the lines of 'a busy day tomorrow' that had some very good stuff in.

[forrestang 10]

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 excellent 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

 

Just as a note, I wasn't trying to be cute, I was serious and I would personally LOVE to see such a thread! I would subscribe and participate in it.

 

It would be great if the thread was along the lines of this here Al Brooks thread, and contains real world practical examples day to day that everyone can relate to.

[DbPhoenix 42]

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 thousands of hindsight charts posted throughout TL that will tell you exactly how the trader allegedly traded whatever it was, but how is that going to do you any good (and if those postings were to do you any good, they would have)? Far more important is to locate support and resistance in advance, then determine in advance how you're going to trade it. Finding support and resistance after the fact is useless except for the "learning experience", as is determining afterward how you would have traded it.

 

Why not determine today, after 1600 or so, what the support and resistance levels are for whatever it is you're trading, then post where you plan to enter and exit tomorrow if and when price reaches those levels, stops and all? Otherwise, it's just more shouldawouldacoulda.

[DbPhoenix 42]

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.

 

If I may offer an example, the "Third Time's the Charm" setup, which is a classic example of the difference between following a setup and trading price action.

 

The TTTC setup came about because somebody noticed that price, after testing a certain level twice, would often break through that level after a third test. The fact that price often broke through the level after only two tests or on the fourth or fifth or tenth or failed to break through at all and instead reversed was pretty much ignored. TTTC sounded good.

 

But what in terms of price action is going on here? Price tests, say, R. Buyers are turned back because sellers aren't done. So buyers regroup and try again, buying up more of what sellers have to offer. But the sellers aren't done, so price is turned back yet again.

 

But buyers aren't done yet. They regroup yet again for another try. This time, however, when they reach R, they find that sellers have pretty much sold what they wanted to sell, making the "breakout" not only possible but relatively easy (which is why low "volume" often accompanies such breakouts).

 

But does the "third time" have anything to do with it? Of course not. It may take four tries. Or five. The success of the breakout will depend entirely on how much supply buyers are willing and able to absorb and how much supply sellers want to hand off. If buyers just can't absorb what sellers want to sell, they're turned back, and you have a reversal.

 

So how do you know what to do in real time in this situation? You work with people who are trading whatever it is you're trading in real time. If you can't follow it in real time, much less trade it in real time, then all the rules and chart examples and setups on the planet aren't going to be of much help. You guys have a room set up for this purpose. It's up to you to make use of it and learn from it.

[BlowFish 10]

There are thousands of hindsight charts posted throughout TL that will tell you exactly how the trader allegedly traded whatever it was, but how is that going to do you any good (and if those postings were to do you any good, they would have)? Far more important is to locate support and resistance in advance, then determine in advance how you're going to trade it. Finding support and resistance after the fact is useless except for the "learning experience", as is determining afterward how you would have traded it.

 

Why not determine today, after 1600 or so, what the support and resistance levels are for whatever it is you're trading, then post where you plan to enter and exit tomorrow if and when price reaches those levels, stops and all? Otherwise, it's just more shouldawouldacoulda.

 

Thats the beauty of S/R its all done the night/week/month before, absolutely no excuse not to post lines/zones that you are going to work off in advance.

 

I think its a great idea for a thread. If people want to talk about how they might trade or coulda shoulda woulda traded, thats OK. But the lines should be fresh.

[forrestang 10]

There are thousands of hindsight charts posted throughout TL that will tell you exactly how the trader allegedly traded whatever it was, but how is that going to do you any good (and if those postings were to do you any good, they would have)? Far more important is to locate support and resistance in advance, then determine in advance how you're going to trade it. Finding support and resistance after the fact is useless except for the "learning experience", as is determining afterward how you would have traded it.

 

Why not determine today, after 1600 or so, what the support and resistance levels are for whatever it is you're trading, then post where you plan to enter and exit tomorrow if and when price reaches those levels, stops and all? Otherwise, it's just more shouldawouldacoulda.

I suppose seeing ANY chart in hindsight is simply how someone would have allegedly traded something? That's just a variable we can't control.

 

But seeing these actual examples is what I think will help those of us interested in the topic. As I mentioned earlier, a complete picture of the logic behind a trade would be helpful.

 

For example, when I was trying to trade mainly based off S/R (this was on another forum), I would post the levels I had on my chart BEFOREHAND(see two pictures below, these are old levels so ignore the actual numbers), so all my levels were always cataloged. When I would post my examples, I would base my trades off these levels, and explain my rationale behind entry and exit for example.

 

So it's not that I have not attempted to trade this way before, its simply that I wasn't able to make sense of HOW to properly trade this way. I think examples of HOW others that are successful at this would be helpful to those interested in it.

Edited July 9, 2009 by forrestang

[DbPhoenix 42]

I suppose seeing ANY chart in hindsight is simply how someone would have allegedly traded something? That's just a variable we can't control.

 

But seeing these actual examples is what I think will help those of us interested in the topic. As I mentioned earlier, a complete picture of the logic behind a trade would be helpful.

 

For example, when I was trying to trade mainly based off S/R (this was on another forum), I would post the levels I had on my chart BEFOREHAND(see two pictures below, these are old levels so ignore the actual numbers), so all my levels were always cataloged. When I would post my examples, I would base my trades off these levels, and explain my rationale behind entry and exit for example.

 

So it's not that I have not attempted to trade this way before, its simply that I wasn't able to make sense of HOW to properly trade this way. I think examples of HOW others that are successful at this would be helpful to those interested in it.

 

But other than "here are my pivots" (which is cautionary right there), you don't explain what all these lines are or where they came from. Therefore, it's next to impossible to determine whether they are genuine S/R or just lines.

 

For example, price drops off the bottom of your screen and after some time works its way back. Why? Where did it reverse? Was there support down there? Clearly there was or price wouldn't have reversed. But where was it, and why? Beyond that you have to decide how much risk you're willing to assume, what your target is, what signs of trouble you're going to look for that may signal that your target isn't going to be reached, etc, etc, etc. If you want buy here, put stop there, exit up there, it's unlikely that there will be enough hindsight charts to help you. Doing this in real time will more likely be of much greater help, but there are only three people in your room. How come?

[forrestang 10]

But other than "here are my pivots" (which is cautionary right there), you don't explain what all these lines are or where they came from. Therefore, it's next to impossible to determine whether they are genuine S/R or just lines.

 

For example, price drops off the bottom of your screen and after some time works its way back. Why? Where did it reverse? Was there support down there? Clearly there was or price wouldn't have reversed. But where was it, and why? Beyond that you have to decide how much risk you're willing to assume, what your target is, what signs of trouble you're going to look for that may signal that your target isn't going to be reached, etc, etc, etc. If you want buy here, put stop there, exit up there, it's unlikely that there will be enough hindsight charts to help you. Doing this in real time will more likely be of much greater help, but there are only three people in your room. How come?

 

Oh boy....:crap:

 

The picture that you see is truncated. It does not contain the entire picture that was in the post. I literally just used snagit to capture a picture of what I was doing (just now to explain it to you). I was not able to capture the entire picture. So let me explain.......

 

I created a post, on that forum, where we could all post our significant levels, and WHY we thought they were significant. Each day it was updated. So what you saw was the latest levels that I had either added, or dismissed, FOR THAT DAY.... 4-11-09. I.e. if I had a level that I explained from a week ago, it was STILL level, I didn't re-explain it if nothing had changed.

 

----edit----

The Picture that you see, usually was only relevant to the new levels. So if I had levels from weeks back, and price was waaay away from it, I wouldn't try to fit levels in the picture that had already been explained, that's just not reasonable and it's too time consuming. But if for example I had a new level from the day prior, I would post a picture of what price had done in that area, and add it to the levels. Does that make sense?

[BlowFish 10]

Start the thread and see how it goes. Call it levels for tomorrow or something.

[DbPhoenix 42]

Oh boy....:crap:

 

The picture that you see is truncated. It does not contain the entire picture that was in the post. I literally just used snagit to capture a picture of what I was doing (just now to explain it to you). I was not able to capture the entire picture. So let me explain.......

 

I created a post, on that forum, where we could all post our significant levels, and WHY we thought they were significant. Each day it was updated. So what you saw was the latest levels that I had either added, or dismissed, FOR THAT DAY.... 4-11-09. I.e. if I had a level that I explained from a week ago, it was STILL level, I didn't re-explain it if nothing had changed.

 

Understood. But, again, there are all sorts of lines that one can draw that have absolutely nothing to do with S/R. You say you don't know "HOW" to trade it, but one can't even begin to work on the how until he knows that the levels he's plotted are legitimate.

 

I've done three threads on this and don't want to take up any more space here. But, again, I urge those who want to incorporate this into their trading to post charts after today's "close" which show what support and resistance they'll be looking for tomorrow and what they plan to do if and when price reaches those levels. Doing it tomorrow afternoon isn't going to be of much help.

[bakrob99 11]

please delete this post

[forrestang 10]

please delete this post

 

That's a double edged sword. Trading Brooks way is a scalping technique. It is VERY different than swing trading (although some swing some of their trade).

 

Scalping and swinging are different. Both have the upsides and downsides. Sometimes the math is against you scalping when you're risking more than you are going to make on a trade.

 

These are two totally different methods of trading. And everybody has different personalities and goals that are going to suit different ways of trading.

 

It seems like the concept of this being a thread mainly about 'scalping' for tics here, maybe a few points there has been lost in the forest.

[bakrob99 11]

Brooks is a scalper ... but don't forget he says that he gets 2 or 3 of his trades to run each day (12 + ticks) ... after he moves his stop to BE after 4 ticks of profit on the first part. (I think he trades quite a few contracts ... so for him 1 point actually is quite a bit of dough ... he promotes trading SIZE rather to make money rather than having to get a large number of points)

[thalestrader 14]

Looking at the posted chart - if you (your daughter) had followed Brook's rules, you would not have had the 1st loss and have entered at a better price on the 2nd trade.

 

Well that is not surprising at all, as there are significant differences between Brooks method and that which my daughter and I use.

 

For example, each has a very different risk:reward profile. There is a big difference between an approach that seeks to trade 1-2 times/day aiming for 50+ticks average profit/trade with a 20 tick average risk (all while having time for visits to the playground, bike rides, and ice cream) and one that trades 4-8+ times each day looking for perhaps a 4 tick average profit/trade with perhaps a 4-8 ticks risk).

 

I try to make my posts useful and interesting, even when they seemingly stray somewhat from general course of the thread. I am interested in Brooks method, though I will never be a devotee to his method. He does make some useful and interesting observations.

 

You could have made your above post both interesting and useful had you included at least a description of how a Brooks trader would have approached the EURJPY, and maybe even some charts. I would have greatly enjoyed that post.

 

As it is, it just comes across as being mean spirited.

 

Best Wishes,

 

Thales