i sound like trendfollower which i am i am definitely not Brooks follower, however some of his ideas i appreciate - no countetrend, no barb wire trading, thinking context first, setups second. Some time ago i already posted my detailed opinion in other 'brooks thread'
this may sound odd but i am not one too i do follow a few of his 'rules'......now. i am individual and a perfectionist and both have been a big problem in my day trading but i have been a follower of TA since 1994.......
When it comes to BO's Brooks says a trader HAS to use wide stops. Because he can experience deep PB's. For instance, in a bull BO that has say 2 or more large bars (especially if the bars are increasing in size) you can enter for any reason. Just get long. You don't have to wait for a specific setup. Assuming a trader entered long on that larger bull bar that broke out of the range (bar 14:00). The correct stop is at the bottom of the first BO bar. Why? Because 80% of BO's of a range, top or bottom, fail, and price goes back into the range within 5 bars or so. However, once price stay above the range and there is a minor PB with the BO trend resuming (that is, in other words, a major high compared to other high's on the chart...i.e. a high showing more strength...i.e. the second or third leg of the BO appears strong after minor PB) then a trader can move his stop to just below the minor PB. But to do so he has to see some strength in that resumption of the BO. Otherwise, he needs to keep his SL below the first bar of the BO, in it's first leg. Because, if he entered long on bar 14:00, kept a wide initial SL, and price goes back into the range for a bit, the odds favor another pop back up because the BO bar (14:00) will likely have a test of it's high and the trader (depending on where he entered on the 14:00 bar) may get out at BE, or a profitable scalp. The way you reduce risks in BO's where you have to use wide SL's is by reducing position size when using wide stops. If you trade BO's with small SL you are likely going to get whipped around all over the place because volatility has increased, which is the natural modus operandi of most all BO’s. Increased volatilty has to mean wider stops because both sides (institutional bulks and bears) are battling it out. Bulls want the BO to succeed and go higher. Bearish institutions are trying to make it fail. Both are pushing hard and pressing bets. One side will win. If the bulls then the bears give up and start running with the bulls. Like in Spain..LOL. In the 5 min chart below by bar 14:40 the bears have given up and the bar shows it. This a “give up” bar for the bears. If the bears win bulls give up and go back to TR strategies. See, probability MUST be factored into any trade when intraday trading. It is a colossal mistake to just base trades on a reward to risk ratio basis.
Why is bar 14:40 a “give up bar” for the bears. Before it’s close they realize they have lost the tug of war. The bulls are too strong. Price has broke above the previous sessions low bar 15:15 on Jan 29. The opening gap down for Jan 30 session has been entirely closed. Price has stayed above the top of the range for 4 bars and endured five PB’s ( bar 14:05 ...implied pb, bar 14:10 actual PB, implied pb bar 14:25, implied pb bar 14:30, implied pb bar 14:35. From bar 14:00 to 14:35 lots of basically sideways motion. Overlapping bars....indicative of both sides pushing. Nevertheless, Bulls appear to have a bit of the upper hand as they are keeping price above the previous range. But both are duking it out. Both sides pushing and pressing. Neither side definitively winning. Then comes bar 14:40 and bulls win. In addition, bar 14:40 is a bigger range bar indicating not only have the bears given up and exited their shorts but they have joined the bulls by going long. Those three forces (covering shorts...which is long trades), going long together the previous bulls that are scaling up, and joining the late bulls that are too entering long, together all this created the larger range bar 14:40 and pushed price higher, and further. Bears won't be anxious to get long again any time soon as they are expecting at least two legs up and probably a measured move up from the the initial SL to the top of bar 14:35 extrapolated up. So, there will likely be little opposition to any further move up from the close of bar 14:40. It is “sail on silver girl...your time has come..) That MM will be the PT. And you can see some profit taking on bar 15:10 RIGHT at the measured move. And the session was about to end also.
He doesnt advocate them. They are tight by design. If you are getting into a MTR you are probably entering early which would give you 40% success rate. Because if you werent entering early, then you would be waiting for enough bars to tell you if there is going to be one or not. If probability is high, risk/reward is bad. If risk/reward is good, probability is low.
Volpri, thank for smart reasoning, very good as usual Could you please explain one thing about Brooks trading style. Brooks as well as you talk about stops and entries based on extremes of bars/candles. This is totally unclear for me. Bars/candles are artificial construction of trader, there are no bars on marketplace. In fact bars are just indicators, the way to bundle ticks into compressed construction. For me entry ‘1 tick above previous 5 min bar’ sounds as logical as ‘enter when MACD(x,y,z) crosses zero line’. What is your logic behind placing stops (and entries may be) based on bars extremes?
Where he says to place the stop for MTR’s is IMO advocating a tight SL in THAT scenario. The reason is of course the design or scenario, the context if you will. BUT he could say place a wider SL with MTR’s, but he doesn’t. So he is advocating. Advocating is simply recommending or supporting something. You might wish to look up the definition?? Just as he advocates for wider SL’s in BO’s. If probability is high, reward/risk is bad you say. I would say it is worse but necessarily bad. I prefer taking high probability trades all day long. Quick scalps, locking in profits. Over and over, compounding. Brooks himself says he prefers high probability trades. When reward to risk ratio is good or better then you are correct, probability is lower. So, there will be more failed efforts ...SL’s hit...before a successful trade comes along. MTR’s are an example of this sort of trade. We are talking semantics here.
Well, there are times where he has advocated using a MM to find your SL, esp. if you are scaling in - same could be said for MTR. I know what advocating means you stupid fuck, but if they are designed that way no need to advocate. Its not me saying it - Brooks says this, numerous times in fact lmao. Have you even watched his course? Prolly.