When do I become enlightened in terms of price action trading?

easymon1 · Jan 26, 2022

Saigyou_123 said:
Eventually,
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When do I become enlightened in terms of price action trading?
Eventually.
Simplify. Get good at something Simple.
What is the Simplest Setup you are aware of?

SimpleMeLike · Jan 27, 2022

easymon1 said:
When do I become enlightened in terms of price action trading?
Eventually.
Simplify. Get good at something Simple.
What is the Simplest Setup you are aware of?

View attachment 276502
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Hello easymon1,

You identified a setup that makes money. Why not just trade it buddy?

easymon1 · Jan 27, 2022

SimpleMeLike said:
Hello easymon1,

You identified a setup that makes money. Why not just trade it buddy?
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Hey, that's a great idea. I never thought of that!

sridhga · Mar 1, 2022

Saigyou_123 said:
This is going to be a confused and rambling post.

As I have mentioned in other posts, I am currently reading Reading Price Charts Bar by Bar.

When I first started reading this book, it was hard to read for more than 15 minutes at a time. At that time, it was very difficult to understand what Al Brooks was talking about.

Eventually, I got through the first three chapters by rereading difficult portions several times. When I got to the fourth chapter, I found that I could sit down for an hour at a time to read. At that point, I could more or less understand the literal meaning of what Al Brooks was saying, and follow along his comments about the illustrations. For me, it takes around an hour to get through between five to seven pages.

Now I am at chapter 9. There are 15 chapters in total. Based on the table of contents, I believe that, after chapter 9, most of the fundamental concepts of the book would have been taught. The remaining chapters seem to be about implementation and examples.

Looking back, I feel that I have learnt many new concepts. However, the details of those concepts remain hazy, and I fear that I will only have a superficial understanding of them, unless I go through the book a second time from beginning to end. Since there are around 400 pages, with a liberal estimate of 10 pages per hour, we are looking at around 40 hours for the review process. With a conservative estimate of 5 pages per hour (considering the need to take notes), we may be looking at another 80 hours for the review process. Maybe a third reading is required to have a real understanding of the book.

Maybe this book really is for the "serious trader".

I guess my question is - For those of you who have read the book, was there any point, when you suddenly became enlightened with regard to price action trading à la Al Brooks?

When I read Anna Coulling's A Complete Guide to Volume Price Analysis, as far as I remember the second reading was key. The concepts started to tie together and become clear. When do I reach this point with Al Brooks's book?

If you have experienced significant benefits from Al Brooks's books and videos, please share your experiences as well.

The other option I am looking at is to read Edwards and Magee after the first reading of Reading Price Charts Bar by Bar. It seems to me that much of Reading Price Charts Bar by Bar is built on the foundation laid by Edwards and Magee. It is my hope, therefore, that Edwards and Magee will produce a kind of synergy with Reading Price Charts Bar by Bar to deepen my understanding of price action.
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I made my own notes without those long twisting sentences
Then converted everything in bullet points and made powerpoints on my computer.
One PPT for every chapter.
I wrote all of them in my own simple style.
Now I quickly go through all of them on the weekend.
Now all the chips have fallen in place.
And I am kind of comfortable with the subject.
Took me 15 months to get here.

sridhga · Mar 1, 2022

longandshort said:
I get a lot of flack for this, but Al Brooks and other writers of chart analysis don’t really know what they’re talking about.

Stock prices and chart patterns you see are the result of lit crossed orders and do not tell you the intention of the trades (remember for every seller there is a buyer) on each candle. Brooks has never worked or studied with market makers or institutional traders, also he rehashes the “common” thinking of retail traders without doing any study.

Some key concepts that serves as the basis of his thinking that’s wrong are:

There is intention behind every candle/tick — this is patently false, I’ll explain below

Trading is not zero sum — he’s confusing trading with investing, trading is zero sum (actually slightly negative skew due to paying for bid/ask), investing isn’t

The guys on CNBC know what they’re talking about — 90% false, most of CNBC is garbage (same goes for Bloomberg unfortunately)

In the real world, trading has become very fragmented. Most larger investors cannot facilitate their trades across just one venue, and absolutely are not trading by tick or candle. This is because of the disintermediation trend (banks are no longer the major market makers in equities, regulation also drove this), the rise of alternative trading networks (dark pools and other exchanges, lit or dark), and the role of hft firms (as market makers and speculators).

When you think about trading, you should first seek to understand it as being an exchange that facilitates the logistics of investing. ABC fund wants to buy XYZ stock, and they submit an order to the exchange (or source of whoever may have the shares). That order can take time to fill — from seconds to hours to weeks.

The intention to buy is driven typically by an analysis of the growth or value prospects of the stock (most fund investors rely primarily on equity research, internal or otherwise, to develop a view on a stock). From there, the fund will usually start a position (if it’s a billion dollar fund then even 1% is still $10MM in value) and will usually set a max weight of 5-10% of the portfolio in any one name.

To start a position the fund’s trader will first look at displayed liquidity to gauge what the transaction cost might look like. Transaction cost is primarily the slippage — the amount the shares move as you are trying to fill the order.

If you look at the bid ask of any stock you’ll see price x size. So when you, as a larger trader, try to buy, you are lifting the ask x size. If the displayed size is 1k and your order is 10k, you will easily take the nbbo’s offer, and start to get worse prices.

Imagine you’re on Amazon and are trying to buy a book, and sort it by price. The size at best price might 1-5 copies— so if you buy 100 copies the price will get worse for you.

Because of this challenge, traders mainly fill their orders using algos that seek liquidity or that manage the size of the order as a % of volume in order to hide what’s going on. If you overlay all these different approaches, you begin to realize that at a very short time scale, the trends will look random but that as you “zoom out”, trends in price and volumes are correlated. What this also means is that you have no edge in shorter time frames (unless you are the guy dumping or buying stock in size). On the chart, the price will oscillate wildly.

Once you begin to add on the normal volumes of the stock, you get a noticeable, incremental trend. Because large investors can take days/weeks to fill orders (and because there are lots of them moving in and out of stocks), you get momentum in both the short and medium term. For example, 5-day momentum typically reverses in the subsequent week as does 20-day momentum (at the margin more funds were buying/selling and it takes them that long to trade).

With that being said there are possible trades you can make using charts:

Momentum is a good one, simply if price has risen over the last 6-12 months (in absolute and relative to local index), it tends to persist

In the short run momentum reverses (5 and 20 day), there is possible intraday momentum but there is actually a negative drift during trading days for most stocks

Market anomalies such as price spreads between companies doing a merger/acquisition when one stock moves, small cap anomaly due to funds seeking liquidity at the end of day, slow diffusion of information anomaly where large cap stocks are more efficient than small cap so you can trade the small cap on large cap news, etc. but these all require more work to figure out the anomaly and how to harvest the returns from it

Tl;dr
Al Brooks never worked on a trading floor, nor has he apparently ever spoken to someone who has, so his understanding of how trading works is factually incorrect. I would avoid reading his books or spending time trying to figure out “price action” at this level. I’d recommend that you pick up a basic book on corporate finance first to understand how managers of companies buy/sell/issue stock and debt, read a book on market microstructure to understand the logistical considerations (different exchanges and ATNs and how it all consolidates on the chart making the chart super noisy), and read about the investment process of institutional investors (can read books written by them or training material for their jr staff).

Once you have the foundation you should then start reading leading papers on major anomalies you’ve heard of such as the momentum, value, and size factors. From there you’ll be able to learn about various anomalies or discrepancies and can then do your own research to see if there is an opportunity. This is the path of successful traders.
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You are telling on one hand that Al Brooks does not have the correct understanding of the market. On the other hand, you keep rattling off those points that Al Brooks already mentioned in his book. Am I missing something?

easymon1 · Mar 2, 2022

A Brooks Live Trading Session youtube
https://www.elitetrader.com/et/thre...-a-buck-thats-understood.365269/#post-5550929

easymon1 · Mar 14, 2022

"When do I become enlightened in terms of price action trading?"

When they put your name on the mixing board.

easymon1 · Mar 14, 2022

or maybe ...
Rogan: "What was the process?"

easymon1 · Mar 22, 2022

easymon1 said:
Suppose your paycheck was based on the percent of entry triggers correctly taken?
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https://www.elitetrader.com/et/thre...ercent-entry-triggers-correctly-taken.343345/