Trading Price Action Trading Ranges Technical Analysis of Price Charts Bar by Bar for the Serious Trader

by Brooks, Al

• ISBN13: 9781118066676
• ISBN10: 1118066677
• Edition: 1st
• Format: Hardcover
• Copyright: 2012-01-03
• Publisher: Wiley

Summary

The introduction to this book will be short and related only to this volume. The market is either trending or in a trading range and it is often transitioning from one to the other. When the market is transitioning from a trading range into a trend, it is breaking out. Since trends were just discussed in the first book, this second book begins with how trading ranges turn into trends, which are now familiar to the reader. It explains why breakouts form and why they end, which is always at some kind of support or resistance area. The market gets drawn quickly to these areas and because of this pull, I refer to them as magnets. As the breakout is unfolding, traders can use several mathematical techniques to measure where the trend will likely end and then begin to form a trading range, and these measured moves are discussed in detail. Once the market reaches a magnet, it then pauses and pulls back, and usually then resumes. Pullbacks are reliable setups and the book describes them and how to trade them in detail. If a pullback grows so large that it is uncertain if the trend will resume or reverse, it has become a trading range. Most markets are in trading ranges most of the time and therefore most trades that traders make are within trading ranges. Understanding them and how to trade them is critical to anyone trying to make a living as a trader. Traders need to know how to place orders to get into and out of trades and it is useful to know how to scale into and out of positions. Also, mathematics is the basis for all trading. Every trader asks himself, "Will I make money if I take this trade?" This means that the traders is making a statistical analysis of what he sees based on risk, reward, and probability, and understanding this math makes trading less stressful and more profitable.

Author Biography

Al Brooks is a technical analysis contributor for Futures magazine and an independent day trader. His approach to reading price charts was developed over two decades in which he changed careers from ophthalmology to trading. Brooks graduated from The University of Chicago Pritzker School of Medicine in 1978 and received a BS in mathematics with honors from Trinity College in 1974. His website, brookspriceaction.com, outlines his trading approach and views as well as hosts a subscription-based daily trading chat room in which Brooks talks with other traders about the market.

Table of Contents

Acknowledgments xi

List of Terms Used in This Book xiii

Introduction 1

PART I Breakouts: Transitioning into a New Trend 35

CHAPTER 1 Example of How to Trade a Breakout 53

CHAPTER 2 Signs of Strength in a Breakout 61

CHAPTER 3 Initial Breakout 81

CHAPTER 4 Breakout Entries in Existing Strong Trends 91

CHAPTER 5 Failed Breakouts, Breakout Pullbacks, and Breakout Tests 99

CHAPTER 6 Gaps 119

PART II Magnets: Support and Resistance 139

CHAPTER 7 Measured Moves Based on the Size of the First Leg (the Spike) 153

CHAPTER 8 Measured Moves Based on Gaps and Trading Ranges 165

CHAPTER 9 Reversals Often End at Signal Bars from Prior Failed Reversals 175

CHAPTER 10 Other Magnets 179

PART III Pullbacks: Trends Converting to Trading Ranges 183

CHAPTER 11 First Pullback Sequence: Bar, Minor Trend Line, Moving Average, Moving Average Gap, Major Trend Line 205

CHAPTER 12 Double Top Bear Flags and Double Bottom Bull Flags 213

CHAPTER 13 Twenty Gap Bars 233

CHAPTER 14 First Moving Average Gap Bars 239

CHAPTER 15 Key Inflection Times of the Day That Set Up Breakouts and Reversals 245

CHAPTER 16 Counting the Legs of Trends and Trading Ranges 253

CHAPTER 17 Bar Counting: High and Low 1, 2, 3, and 4 Patterns and ABC Corrections 259

CHAPTER 18 Wedge and Other Three-Push Pullbacks 301

CHAPTER 19 Dueling Lines: Wedge Pullback to the Trend Line 313

CHAPTER 20 “Reversal” Patterns: Double Tops and Bottoms and Head and Shoulders Tops and Bottoms 319

PART IV Trading Ranges 327

CHAPTER 21 Example of How to Trade a Trading Range 367

CHAPTER 22 Tight Trading Ranges 377

CHAPTER 23 Triangles 411

PART V Orders and Trade Management 417

CHAPTER 24 Scalping, Swinging, Trading, and Investing 419

CHAPTER 25 Mathematics of Trading: Should I Take This Trade? Will I Make Money If I Take This Trade? 437

CHAPTER 26 Need Two Reasons to Take a Trade 481

CHAPTER 27 Entering on Stops 491

CHAPTER 28 Entering on Limits 493

CHAPTER 29 Protective and Trailing Stops 517

CHAPTER 30 Profit Taking and Profit Targets 535

CHAPTER 31 Scaling Into and Out of a Trade 543

CHAPTER 32 Getting Trapped In or Out of a Trade 567

About the Author 571

About the Website 573

Index 575