Part I Price Action

252 Pages·2006·17.09 MB·English

Contents
Cover
Series
Title Page
Copyright
Dedication
Acknowledgments
List of Terms Used in This Book
Introduction
Part I: Price Action
HIGH-FREQUENCYTRADING
HOWTOREADTHESEBOOKS
SIGNSOFSTRENGTH:TRENDS,BREAKOUTS,REVERSALBARS,ANDREVERSALS
BARCOUNTINGBASICS:HIGH1,HIGH2,LOW1,LOW2
Chapter 1: The Spectrum of Price Action: Extreme Trends to Extreme
Trading Ranges
Chapter 2: Trend Bars, Doji Bars, and Climaxes
Chapter 3: Breakouts, Trading Ranges, Tests, and Reversals
Chapter 4: Bar Basics: Signal Bars, Entry Bars, Setups, and Candle
Patterns
Chapter 5: Signal Bars: Reversal Bars
Chapter 6: Signal Bars: Other Types
STRONGTRENDBAR
REVERSALPATTERNS
ALLBARSINACHANNEL
Chapter 7: Outside Bars
Chapter 8: The Importance of the Close of the Bar
Chapter 9: Exchange-Traded Funds and Inverse Charts
Chapter 10: Second Entries
Chapter 11: Late and Missed Entries
Chapter 12: Pattern Evolution
Part II: Trend Lines and Channels
Chapter 13: Trend Lines
Chapter 14: Trend Channel Lines
Chapter 15: Channels
Chapter 16: Micro Channels
Chapter 17: Horizontal Lines: Swing Points and Other Key Price Levels
Part III: Trends
Chapter 18: Example of How to Trade a Trend
Chapter 19: Signs of Strength in a Trend
Chapter 20: Two Legs
Part IV: Common Trend Patterns
Chapter 21: Spike and Channel Trend
Chapter 22: Trending Trading Range Days
Chapter 23: Trend from the Open and Small Pullback Trends
Chapter 24: Reversal Day
Chapter 25: Trend Resumption Day
Chapter 26: Stairs: Broad Channel Trend
About the Author
About the Website
Index
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Copyright©2012byAlBrooks.Allrightsreserved.
Thefirsteditionofthisbook,titled ReadingPriceChartsBarbyBar:TheTechnicalAnalysisofPriceActionforthe
SeriousTrader,waspublishedin2009.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
AllchartswerecreatedwithTradeStation.©TradeStationTechnologies,Inc.Allrightsreserved.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyany
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LibraryofCongressCataloging-in-PublicationData:
Brooks,Al,1952–
Tradingpriceactiontrends:technicalanalysisofpricechartsbarbybarfortheserioustrader/AlBrooks.
p.cm.–(TheWileytradingseries)
“Thefirsteditionofthisbooktitled,Readingpricechartsbarbybar:thetechnicalanalysisofpriceactionforthe
serioustrader,waspublishedin2009”–T.p.verso.
Includesindex.
ISBN978-1-118-06651-5(cloth);ISBN978-1-118-16623-9(ebk);
ISBN978-1-118-16624-6(ebk);ISBN978-1-118-16625-3(ebk)
1.Stocks–Prices–Charts,diagrams,etc.I.Brooks,Al,1952–Readingpricechartsbarbybar.II.Title.
HG4638.B7652012
332.63′2042–dc23
2011029297
Iwouldliketodedicatethisbooktomywonderfullykinddaughter,TessBrooks,whoseeslifeasfilledwith
opportunitiesandseeksthemoutaroundtheworldwithouthesitation.Sheisabold,originalthinkerandadoer,
andfillsherlifewiththedreamsthattherestofushavebutaretooafraidtopursue.
Acknowledgments
Myprimarygoalistopresentaseriesofcomprehensivebooksonpriceactionthataddressesthegreatestconcern
amongreaders,whichwashowdifficultmyearlierbook, ReadingPriceChartsBarbyBar,wastoread.Iamdeeply
appreciativeofalloftheconstructivecommentsthatreadershaveprovidedandthosefromtheparticipantsinmy
daily live webinars. Many of these comments were incredibly insightful, and I have incorporated them in this
currentedition.Iamalsothankfultoallofthetraderswhohavebeeninmylivetradingroom,becausetheyhave
givenmetheopportunitytosaythingsrepeatedlyuntilIcouldclearlyarticulatewhatIamseeinganddoing.They
havealsoaskedmanyquestionsthathavehelpedmefindthewordstocommunicatemoreeffectively,andIhave
putthosewordsintothesebooks.
Iwouldliketogiveaspecialthank-youtoVictorBrancale,whospentlonghoursproofreadingthemanuscripts
andprovidinghundredsofveryhelpfuleditsandsuggestions,andtoRobertGjerde,whobuiltandadministersmy
websiteandhasgivenmecandidfeedbackonthechatroomandthewebsite.Finally,IwanttothankGingerSzala,
the Group Editorial Director of Futures magazine, for giving me ongoing opportunities to publish articles and
speak in webinars, and for regularly giving me very helpful advice on how to become more involved with the
tradingcommunity.
List of Terms Used in This Book
Allofthesetermsaredefinedinapracticalwaytobehelpfultotradersandnotnecessarilyinthetheoreticalway
oftendescribedbytechnicians.
alwaysin Ifyouhavetobeinthemarketatalltimes,eitherlongorshort,thisiswhateveryourcurrent
positionis(alwaysinlongoralwaysinshort).Ifatanytimeyouareforcedtodecidebetweeninitiatinga
longorashorttradeandareconfidentinyourchoice,thenthemarketisinalways-inmodeatthat
moment.Almostallofthesetradesrequireaspikeinthedirectionofthetrendbeforetraderswillhave
confidence.
barbwire Atradingrangeofthreeormorebarsthatlargelyoverlapandoneormoreisadoji.Itisatypeof
tighttradingrangewithprominenttailsandoftenrelativelylargebars.
barpullback Inanupswing,abarpullbackisabarwithalowbelowthelowofthepriorbar.Ina
downswing,itisabarwithahighabovethatofthepriorbar.
bearreversal Achangeintrendfromuptodown(abeartrend).
blownaccount Anaccountthatyourlosseshavereducedbelowtheminimummarginrequirementssetby
yourbroker,andyouwillnotbeallowedtoplaceatradeunlessyoudepositmoremoney.
breakout Thehighorlowofthecurrentbarextendsbeyondsomepriorpriceofsignificancesuchasaswing
highorlow,thehighorlowofanypriorbar,atrendline,oratrendchannel.
breakoutbar(orbarbreakout) Abarthatcreatesabreakout.Itisusuallyastrongtrendbar.
breakoutmode Asetupwhereabreakoutineitherdirectionshouldhavefollow-through.
breakoutpullback Asmallpullbackofonetoaboutfivebarsthatoccurswithinafewbarsafterabreakout.
Sinceyouseeitasapullback,youareexpectingthebreakouttoresumeandthepullbackisasetupforthat
resumption.Ifinsteadyouthoughtthatthebreakoutwouldfail,youwouldnotusetheterm pullback and
insteadwouldseethepullbackasafailedbreakout.Forexample,iftherewasafive-barbreakoutabovea
beartrendlinebutyoubelievedthatthebeartrendwouldcontinue,youwouldbeconsideringshortingthis
bearflagandnotlookingtobuyapullbackimmediatelyafteritbrokeouttothedownside.
breakouttest Abreakoutpullbackthatcomesclosetotheoriginalentrypricetotestabreakevenstop.It
mayovershootitorundershootitbyafewticks.Itcanoccurwithinabarortwoofentryorafteran
extendedmoveoreven20ormorebarslater.
bullreversal Achangeintrendfromadowntrendtoanuptrend(abulltrend).
buyingpressure Strongbullsareassertingthemselvesandtheirbuyingiscreatingbulltrendbars,barswith
tailsatthebottoms,andtwo-barbullreversals.Theeffectiscumulativeandusuallyiseventuallyfollowed
byhigherprices.
candle Achartrepresentationofpriceactioninwhichthebodyistheareabetweentheopenandtheclose.
Ifthecloseisabovetheopen,itisabullcandleandisshownaswhite.Ifitisbelow,itisabearcandleandis
black.Thelinesaboveandbelowarecalledtails(sometechnicianscallthemwicksorshadows).
charttype Aline,bar,candle,volume,tick,orothertypeofchart.
climax Amovethathasgonetoofartoofastandhasnowreverseddirectiontoeitheratradingrangeoran
oppositetrend.Mostclimaxesendwithtrendchannelovershootsandreversals,butmostofthosereversals
resultintradingrangesandnotanoppositetrend.
countertrend Atradeorsetupthatisintheoppositedirectionfromthecurrenttrend(thecurrentalways-
indirection).Thisisalosingstrategyformosttraderssincetheriskisusuallyatleastaslargeasthereward
andtheprobabilityisrarelyhighenoughtomakethetrader'sequationfavorable.
countertrendscalp Atradetakeninthebeliefthatthereismoretogointhetrendbutthatasmallpullback
isdue;youentercountertrendtocaptureasmallprofitasthatsmallpullbackisforming.Thisisusuallya
mistakeandshouldbeavoided.
daytrade Atradewheretheintentistoexitonthedayofentry.
directionalprobability Theprobabilitythatthemarketwillmoveeitherupordownanynumberofticks
beforeitreachesacertainnumberofticksintheoppositedirection.Ifyouarelookingatanequidistant
moveupanddown,ithoversaround50percentmostofthetime,whichmeansthatthereisa50–50
chancethatthemarketwillmoveupbyXticksbeforeitmovesdownXticks,anda50–50chancethatitwill
movedownXticksbeforeitmovesupXticks.
doji Acandlewithasmallbodyornobodyatall.Ona5minutechart,thebodywouldbeonlyoneortwo
ticks;butonadailychart,thebodymightbe10ormoreticksandstillappearalmostnonexistent.Neither