Brooks Blog Flashcards
When the day is the exact low or high of the day, there is a very high probability that the market will fall below/above the opening tick and a create a tail.
He goes on to say, “Look at the daily chart and try to find a day where the open is the exact low or high of the day, and you will ahve ahard time fidning one.”
Since the first 3 bars of the day were big bull bars, it was likely that any bear breakout below bar 1 would fail and lead to more sideways trading
Often on a Trading Range day, there is a reversal around bar 40.
Overall, in a trading range day, it is important to not buy too high and sell too low. Often the breakout look strong at the same time and look like they will successfully breakout of the trading range, only to fall and trap traders.
He said, March 29th was a credible buy the close bar (though very climactic), and the market did not let “buy the close” bulls out who bought the March 29th close. This increased the chances that the market will have to test back up to the March 29th close.
From Wednesday Blog: The bulls are hopeful that this will lead to a rally back up to the March 29 close. March 29 was a reasonable buy the close bar (although climactic). This means there will be scale in bulls looking to exit around the March 29 close, so it is a magnet.
Define “Failed Failure”
A failure that fails, resuming in the direction of the original breakout, and therefore a breakout pullback. Since it is a second signal, it is more reliable. For example: If there is a breakout above a trading range and the bar after the breakout is a bear reversal bar, if the market trades below that bar, the breakout has failed. If the market then trades above the high of a prior bar within the next few bars, the failed breakout has failed and now the breakout is resuming. This means that the failed breakout became a small bull flag and just a pullback from the breakout.
When the market makes a strong move up or down on the open and reverses as it did around bar 5, the odds favor a trading range and not an opposite trend. This means the odds favored a failed bear breakout below bar 1.
When the open of the day is close to the middle of the range, and the market is late in the day, one should be open to the possibility of a test of the open as it did around 2:15 PT.
One thing interesting to note was that the market only had 2 closes above the moving average all day. This is a sign of an exceptionally strong trend day. Look mast at most trending days, and you will find at least 3-4 closes above/below the moving average at a minimum.
If the first 2-3 bars overlap, that will signify a trading range day, and traders should consider waiting for a credible stop entry setup or a strong breakout with follow-through.
If a trader has trouble on trading range opens, they should consider waiting for 6-12 bars before placing a trade.
Traders have to question why last Friday’s signal bar is a doji and not a strong bull bar closing on its high. Last Friday would not be a doji bar if the bulls were truly strong. This means there is something wrong with the bull argument, and the market may go lower.
The bulls will see last Friday as bad follow-through by the bears and expect the bears to fail around this price level. The bulls will look to buy, hoping the market will test higher and possibly back to the April 18 low.
I wanted to clarify a comment on the prior blog post regarding the monthly chart moving average. I made a statement that I believe the market may have to go lower to satisfy a test of the monthly 20-bar moving average, which I think is still likely. The reason for this is to look at a monthly chart for 20-period moving average and compare the current moving average test to every other touch of the moving average since 2008. You will notice this current test of the moving average went the least number of a points below the moving average, and the market is late in a trend. Pullbacks should get deeper as a trend goes on, which is why I think the market may have to go lower.
Traders should also be aware of the size of the bars as they will likely continue to be big today, which means traders need to trade small.
Today was mostly a trading range that was sloped up (broad bull channel). On the open, the market formed consecutive wedge bottoms around 7:45 PT. When you get consecutive bottoms on the open, there is an increased risk of the market reversing up.
The market also tested a 50% pullback of today’s open to yesterday’s close. This was likely to be a support level.
The market formed a triangle during the first hour of the day.
The bears got a breakout around 7:30 PT, but the follow-through was bad, which increased the odds of an opening reversal.
The big bear breakout bar around 11:15 PT was big, but it had a big tail below, which increased the odds of breakout failing.
Here is a chart that I successfully overnighted puts. But after exiting that position, my intraday trading was horrible as I made 3 tries at “catching” a reversal.
One thing I noticed from additional attempts today is look at the amount of bear candles in a series, compared to bull. That will tell me a lot.
May 20, 2022
The market finally reached a 20% correction where it found buyers betting on a bounce. Traders bought the selloff because they believed it was a sell vacuum test of support (20% correction).
On the open, the bears got a strong breakout (bar 8) below the moving average around 7:05 PT. While the follow-through after the bear breakout was sideways and disappointing, the bar 8 bear breakout was strong enough for traders to expect a second leg down.
The market went below yesterday’s low during the 8:00 selloff, and the market was sell the close, so traders were betting on a second leg down.
The market formed a parabolic wedge bottom around 10:30 PT, after consecutive sell climaxes, which increased the odds of ten bars and two legs up.
The bulls were able to get a successful higher low major trend reversal that broke out to the upside in the final hour of the day, making the market buy the close for the rest of the day.
May 25th
When the market has a trend from the open, there is a 60% chance that the day will evolve into a trading range day, which happened today and the previous day. There is only a 20% chance the entire day will remain a trend from the open.
Today sold off aggressively on the open down to 7:20 PT, which is climactic and unsustainable behavior. This increased the odds of the market having to form a trading range soon.
June 1st, Al called this a 2nd Leg Trap. “Bears hope that the three consecutive bull bars are a 2nd leg trap that will trap bulls into buying too high. The rally up to May 17 is the first leg, and the or the May 23 is the first leg, followed by the rally up to May 26 being the second leg up.”
(Not sure what this means) “Traders do not care that May 17 was followed by a new low and may view it as part of the two-legged pullback creating the second leg trap.”
If this is going to be a second leg trap, the bulls may get a small second leg up and a bear bar closing on its low. That would create a micro double top, possibly enough to disappoint the close bulls who bought on May 27.
Second, bull traps like May 27 are common in trading ranges and bear channels. Even if May 27 is a 2nd leg trap, the market may sell off to the May 25 low and go sideways. Successful 2nd leg bull traps often form trading ranges and do not go far below the second leg.
June 1st: Yesterday was the final day of the month. The monthly chart closed as a doji bar. This is a sign of the market becoming neutral and increases the odds that there might be sellers above last month’s high, which is consistent with what the daily chart tells us.
May 31st Chart. E-Mini
May 30th: “The bulls got a strong bull breakout above the 20-period moving average and have four consecutive bull bars on the daily chart. This is strong enough to make the market always in long.”
June 1st: Bulls see the three consecutive bull bars up to May 27 as a strong enough bull breakout that will lead to a measured move projection up to the April 18 low. This is because trading ranges close open gaps.
The Market tested the May 17 breakout point high yesterday and could not close it, which is good for the bulls. The bulls will try hard to keep this gap open and get a measuring gap based on the May 20 low to the May 17 high projecting up to around the April 18 low.
When you have multiple measured move projections that project to around the same price level (April 18 low), it increases the odds that the market will get there.
June 1st Emini Chart
June 2nd: Today formed an early wedge bottom that led to a strong bull trend day.
The rally up to 8:15 was strong enough to expect at least a couple of legs up at a minimum and a possible measured move up based on the open of 7:30 PT to the close of 8:15 PT, projecting up to 4,164.
When a trend is this strong, it is terrible to look for stop-entry shorts. Instead, traders should wait for the reversal attempt to fail and look to buy the failed reversal (notice how every red except for the first and last had a reasonable stop entry buy following it).
Overall, the market had a strong bull breakout at 8:30, leading to several legs up and a strong trend for the rest of the day.
