price action trading course brookstradingcourse.com market cycle
TRANSCRIPT
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Al Brooks
Price Action Trading Course BrooksTradingCourse.com
Excerpt from Module 11
Market Cycle BrooksTradingCourse.com BrooksPriceAction.com
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Market is in never ending cycle
Trend
Breakout
Channel
Trading range
Trend (breakout in either direction)
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Breakout, channel, trading range
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Inertia and 80% rule
Trend…
80% reversal attempts fail
Trading range…
80% breakout attempts fail
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Markets tend to continue what they have been doing
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Trend reversals fail…become bear flags
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Trading range breakouts fail
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Why need to know where in cycle?
Each part of cycle has trading opportunities
If know where market is in cycle…
Can take trades that are right for current market
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Example: bull trend
You must buy!!
Many ways to buy
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Once you think bull trend is likely underway…
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Looks strong so don’t wait…buy now!
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Bull bar after BO = higher probability of trend
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Another BO = probable trend
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Buy at market as soon as bar closes
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Strong bull = buy any new bull close
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Buy bear closes: reversals will fail
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Buy PB: buy above prior bar
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Buy below bars
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Pullback = no longer breakout phase
As soon as pullback…
Breakout phase has ended
Channel phase has begun
Later, evolves into trading range
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Pullback = channel phase Evolves into trading range
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Perfect trades cannot exist
No firm would take a trade where there is
• Low probability of making only a
• Small reward while exposed to a
• Large risk
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Cannot exist because an institution has to take other side
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Perfect trades cannot exist
This would…
Create huge trend bar
Greatly increase risk
Reduce remaining reward and probability
Possible climactic end of move
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Any trade approaching perfection would be quickly traded by many institutions
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Trading is always difficult
No one will give you money
Your edge is always small
Goal = consistently good
Don’t have to be perfect
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40 - 60 rule
90% of time, probability is 40 - 60%
Of moving X units in one direction before
X units in opposite direction
Applies to 90% of time = channel or trading range
(other 10% of bars = breakout)
90% of time, probability is unclear, setups don’t look strong
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Turn uncertainty into profit
Simply always go for reward at least twice risk
Compensates for low probability
Results in positive trader’s equation
Profitable strategy
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Bulls and bears can both win!
90% of time…
Between 40 – 60% chance of profitable trade
You will lose 40 – 60% of the time, even with great setups
There is valid bull and bear case at every moment
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Al Brooks
Price Action Trading Course BrooksTradingCourse.com
End of excerpt from Module 11
Market Cycle BrooksTradingCourse.com BrooksPriceAction.com