Al Brooks: "Every indicator works some of the time, but for me, they obfuscate instead of elucidating." Same thing here (except for moving averages and moving average envelopes). Brooks wrote that his single biggest problem with indicators...was that he never fully trusted them. At every setup, he saw exceptions...and so did I. Brooks: "You can optimize constantly, but, since the market is always changing from strong trends to tight trading ranges and then back again and your optimizations are based on what has recently happened, they will soon fail as the market transitions into a new phase." But this is why I have coded my own adaptive dynamic price range envelops, which change with the market each time it transitions into a new phase! Brooks: "I am simply too controlling, compulsive, restless, observant, and untrusting to make money in the long term off indicators or automated systems, but I am at the extreme in many ways and most people don't have these same issues." More than likely, this is true. But I’m not one of those people. I have the very same issues as above. Brooks: "If you focus too much on your indicators, you will see that they are forming divergences all day long and you might find yourself repeatedly entering countertrend and losing money." Yep! Brooks: "I always wanted every last penny out of the market and was never satisfied with a return from a system if I could incorporate a new twist that would make it better." Hey, me too! That's why I was never fully satisfied with the winning system I developed in November 2015 until just two months ago, when I finally felt is twas as good as I could make it.
Al Brooks... There was a time when I tried applying the above principle to my trading. But waiting to “see if the test of the old extreme reverses or if the old trend resumes” meant missing out on many, many opportunities due to the fact that there were often times when said “test of the old extreme” never developed—more missed opportunities than I found acceptable. Consequently, I ultimately rejected this tactic and prefer instead to let the numbers (in the form of a specific proprietary moving average plotted on five-minute charts) inform me as to which direction an asset is more likely than not ultimately committed to heading.
Friday, August 16, 2019 / 3:15 p.m. PST Apparently, I am too ignorant and unsophisticated to understand what Al Brooks is saying here, because to me, he seems to be contradicting himself. First, he writes… "One of the most frustrating things for traders when they are starting out is that everything is so subjective. They want to find a clear set of rules that guarantee a profit, and they hate how a pattern works on one day but fails on another. But for a trader to make money, he has to be consistently better than about half of the other traders out there. Since most of the competitors are profitable institutions, a trader has to be very good. Whenever an edge exists, it is quickly discovered, and it disappears. Remember, someone has to be taking the opposite side of your trade. It won't take them long to figure out your magical system, and once they do, they will stop giving you money." I don’t agree with this, but that’s not my point. What I wanted to note is that Brooks then goes on to say something with which I do agree, but that seems to directly contradict the above statements. He goes on to write… "If you learn to read the charts, you will catch a great number of these profitable trades every day without ever knowing why some institution started the trend and without ever knowing what any indicator is showing. You don't need these institutions’ software or analysts because they will show you what they are doing. All you have to do is piggyback onto their trades and you will make a profit. Price action will tell you what they are doing and allow you an early entry with a tight stop.” So how can they discover my edge and put an end to my magical system when my magical system is to piggyback on their trades? Oh wait…now I get it! Al is probably assuming I don’t already have a winning system and I’m like all of these retail traders I read out here talking about beating the market makers. Well, I’m not. That would be crazy from my perspective. No, I am squarely in the “if you can’t beat 'em—join 'em" camp. (I slightly edited the above text attributed to Brooks, but not in any way the altered his central messages.)
Saturday, August 17, 2019 / 8:00 a.m. PST I'm hoping that my conceptualization of Numerical Price Prediction (NPP) is, for the most part, in its final form and that a major revamping of what follows will not become necessary at some point in the future. The purple cluster and gray cluster (which is now actually black) are what I will refer to as waves. The short-term bias line reveals the direction of price flow. The local price range constitutes the general current and its upper and lower bands are viewed as river banks. The gravity line coveys the direction of the tide and the upper and lower bands of the global and/or universal price ranges are more or less thought of as shorelines. Not defined in the above image is "the tube," which is the blue and red fluctuating price-range envelope.
Brooks… "Watching to see if the Federal Reserve cuts rates today is a waste of time because there is both a bullish and bearish interpretation of anything that the Fed does. What is key is to see what the market does, not what the Fed does." Ain’t that the truth. "You cannot make money trading unless you are flexible, because you need to go where the market is going, and the market is extremely flexible." That’s me...bro! "It can bend in every direction and for much longer than most would ever imagine. It can also reverse repeatedly every few bars for a long, long time. Finally, it can and will do everything in between. Never get upset by this, and just accept it as reality and admire it as part of the beauty of the game. "Also, never watch the news during the trading day. If you want to know what a news event means, the chart in front of you will tell you. "Television experts are also useless." Yep, they most certainly are (by and large). And even if a reporter picks a pundit who is correct on the direction of the market, that pundit will not stay with you to manage your trade as conditions change, so given a little time, you are still likely to end up losing money anyway "It is foolish to believe that some pundit who is making over a million dollars a year as the head trader at one of Wall Street's top firms due to his being able to make 15 percent annually managing money can also correctly predict the market's direction over the next hour or two. "Do the math. "If he had that ability, he would be making 1 percent two or three times a day and maybe 1,000 percent a year. "Since he is not, you know that he does not have that ability. His time frame is months and yours is minutes. Since he is unable to make money by day trading, why would you ever want to make a trade based on someone who is a proven failure as a day trader? "He has shown you that he cannot make money by day trading by the simple fact that he is not a successful day trader. That immediately tells you that if he day trades, he loses money because if he was successful at it, that is what he would choose to do and he would make far more than he is currently making. "Only look at the chart and it will tell you what you need to know. The chart is what will give you money or take money from you, so it is the only thing that you should ever consider when trading."
Tuesday, August 20, 2019 / 9:30 a.m. PST As I’ve gotten into Brooks’s publications in more detail, I’ve found that though what initially got me interested in his texts (i.e., that his books seem to get into the practical mechanics of trading in much greater detail that any other material I’ve encountered), I feel like he spends even more time—much more time—talking about his philosophy of trading. Also, whenever he does write about trading itself, he focuses a lot on the interpretation of individual candlesticks, and on counting bars, neither of which I will ever use in that I view both tasks as unnecessary efforts. And finally, Brooks seems to recommend trading off a single chart, making statements such as… "…but this is irrelevant because you should focus on only one chart." "It is always better to just watch and trade off one chart because sometimes things happen too quickly for traders to think fast enough to place their orders if they are watching two charts and trying to reconcile the inconsistencies." "However, most traders would find it easier to simply read only one chart when trading and there is always a 5-minute setup at the end of the pullback." "I simply cannot process multiple indicators and time frames well in the time needed to place my orders accurately, and I find that carefully reading a single chart is far more profitable for me." Indeed, I have ALWAYS been a fan of plotting all the information I need on a single chart. But despite this fact, I definitely will NOT be trading off a single chart. As of this morning, I can clearly see how combining my "ultimate" one-hour configuration with my favorite five-minute setup is likely to lead to my repeatedly reaping sizable harvests, and therefore, I will absolutely be looking at more than one chart when I trade. Besides, I will not be trying to reconcile inconsistencies. In fact, I will be doing just the opposite—scouring the data for alignments. And finally, that fact that things happen quickly will likely not be an issue because I will be consulting the charts in advance, with the higher time frames informing me regarding possible setups or potential trades so that when the time does come to enter or exit a given position, I will only be focused on the lower time frame anyway. Due to all of the above, I think I am finished synthesizing Brooks for now, if not for good, as well as Tharp, Elder, Chande, Kroll, or any other trader. As Brooks himself says… "Why do I no longer read books or articles about trading, or talk to other traders about their ideas? As I said, the chart tells me all that I need to know and any other information is a distraction."
Friday, August 23, 2019 / 12:30 p.m. PST "The trend is your friend" might be true, but personally, I believe it depends on context. Accordingly, there are a number of other factors I'm required to consider before executing any trade. To facilitate my running through them in an efficient manner every time I'm thinking about entering a position, I'm listing them here for easy reference/memorization: Where is the exchange rate located or positioned within the global and universal price ranges? Is the rate oscillating inside the local price range, or is it trending to the outside of this region? Is price action taking place above or below the gravity line? What is the slope of the gravity line? Is price action taking place above or below the anchor line? What is the slope of the anchor line? Is the floor or ceiling (launchpad or landing site) of the Donchian channel (or Donchian channels) flattened out? Is the rate crossing the actionable moving averages after having made contact with a launchpad or landing site? What is the ordinal configuration of the actionable moving averages (and are they fanning out)?
Al Brooks: "Trading range traders are looking for times when they think the market has gone too far in one direction and then they place a trade in the opposite direction (a fade)." That's me!
Al Brooks: With all due respect, I don't believe the above statement for one second... I should change that name of the approach I'm using from Dynamic Probability Trading to Dynamic Trading Range Strategy/System.