Al Brooks' style of trading is based on price action only. He does not look at any technical indicators, only candle sticks, trend lines, and moving averages. He trades mainly S&P futures, but I am trying to apply the techniques to stock equities (SPY).
Chart Setting
- 5 minute chart with 20 EMA. The point is to be simple and nimble. Too much information will simply paralyze you from making quick trading decisions.
Terminology
- H1, H2 Signals: The first and second occurrences where the high of the current bar is greater than the preceding bar during a given pull back of an up trend.
- L1, L2 Signals: The first and second occurrences where the low of the current bar is lower than the preceding bar during a given pull back of a down trend.
- Signal Bar: The bar preceding the H1, H2, ... or L1, L2, ... triggers.
- Entry Bar: The bar after the signal bar.
- Range Bar: A doji or near doji.
- Trend Bar: A large white body candle is a bull trend bar; a red/black one is a bear trend bar.
Entries
- H1 long or L1 short with-trend entries. These work well on a strong trend.
- H2 long or L2 long entries near the 20 EMA. These work well based on the observation that a prevailing trend normally uses a 2 legged pull back before resuming the trend.
- Parallel channel over-shoot and failure. Stay-in-the-channel, don't chase.
- Reversal counter-trend entries only after trend line break AND a retest of the low (long entry) or the high (short entry). Look especially for 3 pushes for better reliable trade.
Exits
- For scalping SPY: Exit 1/3 after the first .10, another 1/3 after .20, and let the remaining 1/3 run.
- Stop exits: Initially 1 tick "beyond" the signal bar; after the entry bar transpires, move the stop to 1 tick "beyond" the entry bar; after taking the first target profit, move the stop to break-even.
Miscellaneous Notes
- Do not look for perfect patterns. Resembling one is good enough.
- Don't over-trade. Be selective. 3-4 trades per day is enough. If you're consistently profitable, simply increase the shares.
- Most of reversals fail, so make with-trend trades.
- Beginners tend to make reversal trades, so areas where they'd be stopped out would be good entries.
- Market usually makes 2 attempts to do something; if failure, it would do the opposite.
- Bail out if the signal bar is weak. E.g. a doji range bar or a bull trend bar on a L1/L2.
- Reversal long entries - if lower low then expect 2 legged up; if higher low, then perhaps only 1 legged up. (Reverse for reversal short entries.)
- Non-trending days: if long tails and overlapping bars during the 1st hour, then try fading at extremes. There tends to be 2 trading ranges.
- Trending days: may want to have a swing trade rather than just a scalp.
- Spike and channel trend day: a gap can be a spike; the channel would be in the direction of a spike.
- Scalping requires higher percentage of winning trades. Swing trades require less winning percentage.
- Only use 1 minute or 3 minute charts for with-trend trades, never counter trend trades.
