Al Brooks’ trading room sample
BPA trading room: September 6, 2016
A follow up, long extract from Al’s trading room. This is in response to requests for more such content from Al’s trading room.
Video duration: 21min
Most days over the past month have had weak openings. The market just kind of goes sideways for a little while. Right here we have a sell signal for a test of yesterday’s high, so it is an okay short below 1. What about buying above 1? It’s a bear bar, and usually that’s not a great buy signal bar, especially at the high. So best choice right here is flat. Buyers or sellers above 1? Better than 50-50 chance sellers above, but still possible low of the day. Buyers or sellers below 1? I think it’s a swing sell.
But with so many days over the past month going sideways on the open, taking an hour or more to decide on direction, today’s probably going to be like every other day, taking an hour or so to decide on its direction. Even here you’ve got a bear trend, but they’re going sideways for a lot of bars. We do not have a big breakout on the open.
So this is a swing short, and it’s an okay swing short, but not a high probability swing short. You can argue test of yesterday’s high. Wedge 1, 2, 3. Micro double top. You saw at 3, again failing to be another big bear bar. More bears gave up and they just started to buy back here, and that made 4 close on its high.
I am still neutral. I think still Always In Short, but not strongly bearish. Bulls hoping the sell-off is weak enough, so that traders will see it as a bull flag. The bears are hoping that we just work lower and have a swing down. I am slightly more bearish than bullish because we’re at resistance, yesterday’s high.
But this is not looking like a bear swing, this looks like a trading range open, and the market is deciding if the initial move will be up or down. For the bears are hoping for an opening reversal, a rally to resistance, yesterday’s high, Friday’s high, and then a reversal down. The bulls are hoping for an opening reversal, a pullback to support, moving average, and then a trend up.
But right now the market is, I think, neutral. It’s Always In Short below 1, but I think it’s really neutral. Traders need a breakout one way or the other. This early two-sided training, a lot of little reversals at the top of our weak rally with a lot of small bars, prominent tails, reduces the chances that today will be a big trend day up or down.
Daily chart analysis – Trading range day
Also, look at the daily chart: the past four days were all dojis. That means the market traded one way and then the other way. Right now the odds are today will be mostly a trading range day, which means it’ll probably have a 2- to 4-hour swing in one direction, and then a swing in the opposite direction. We’re only 10 points away from the all-time high, so we could easily get there today. However, this open so far I think increases the chances that the day is going to be mostly a trading range day.
I think it’s interesting that the bulls made money buying below one, and the bears have not made money, unless they sold the 1 close. You can see it fell 5 ticks, so the traders who sold the 1 or 2 close made 1 point. Makes you question just how bearish this is; 5 bars into the day, the bears had one reasonable scalp. Some traders may have sold a tick below the 4 high, betting against a successful bull breakout.
But even though we have a bear reversal at resistance, yesterday’s high just below the all-time high – it has not been easy for the bears to make money. That reduces the chances – makes it pretty much equal, 50-50, that we’ll go up or down.
They can be short still, stop above 1, maybe a stop above 4, I don’t know. The bulls do not have a stop entry buy yet, but if the market gets above 4, that would be a buy – but not a very good one. I think most traders should either be flat or short.
A lot of times the market does something like that. If you’re quick, you sell this reversal down. The market very often goes the wrong way to trap traders, and you’ve got to be ready for it. I sold after the market went below 7, so I got filled down here. But you’ve just got to be really quick. Very often the market does something like this, traps traders into doing the wrong thing. You can see we went above 7; we also went above 5, a big bear bar, and above 4. Instead of buyers, institutions came in and sold.
Until it becomes clearly a trend, I usually scalp out for a couple of points, and I just get out and back to flat. But this is a “give up” bar. The market right now is deciding whether this is the start of a bear swing that could last 2 or 3 hours, or is it going to fail and instead lead to a trading range. I think it’s a pretty impressive bar, so I think the odds are, right now, 50% we’ve seen the high of the day.
You look at it and see 7 – there’s a bull bar closing in on its high, and trying for the moving average. How can it do this? It’s a 7-bar bear micro channel, so I certainly don’t want to buy above any bull bar, even a good-looking bull bar. It’s a tall bar, so the risk is relatively big. It’s in both a bear channel and a tight trading range, so I don’t want to be buying with a stop above.
What I do is I wait to see if it starts to do that. I was slow making up my mind; I could’ve sold sooner. But I still was able to get at least a short in there.
We’re back in this tight trading range, so we’re going to go sideways here. Bears want to keep the gap open, 7 low, and the bulls obviously want to close the gap and they’re hoping that this bear breakout fails. There’s the measured move, takes us to the bottom, spike channel. Very often the market comes back down to the bottom of the channel, the first pullback after the breakout.
The market’s deciding how bearish this will be. We already see the big tail on the bottom of 8. That’s a problem for the bears. We had a day like that last week. Will we do this? Probably not. When you get these big bear breakouts and you get a tail, or bad follow-through on the next bar, it increases the chances you do this or even get a couple legs up to there.
Here’s an example. Big bear breakout, close below the low of the last 10 bars or so, and then big tail, bull bar. We’ve got to bounce. We stayed below the top of the bear breakout, but a lot of weak bears got out. So we might be doing the same thing here. Will the bears get good follow-through selling on bar 9?
I shorted again here. This time I got out with 1 point. I’m back to flat. I think the odds are 9 is going to disappoint the bears, so I think it’ll be a small bar, or an inside bar, or a bull bar. There’s something wrong with it. But if it closes on its low, we might end up with a bear trend day. We still have room to a measured move and we have this, so we should get to these two prices. We reversed down, we tried to get above Friday’s high – which is the high of last week.
Weekly chart analysis – Buy signal bar
Do you remember what I said on Friday about the weekly chart? I said last week was a buy signal bar. We tried to trigger the buy on the open by going above last week’s high, and we could not get there. We still have 4 days left including today, so we still might trigger the buy on the weekly chart, which might get us up to the all-time high.
Sometimes I can talk about this. You see a buy signal bar here, buy signal bar there, a high 2, two legs down, one pullback, two – and you say “How can 7 form if 8 is so bearish?” I think that some very bearish firms buy during 7 to trigger the buy above 7. They buy through here with the intention of triggering the buy, running the stops. You buy anywhere on 7 to get it to go up, up, up, you buy above 7, and then you immediately sell a huge amount, either at the 7 high or the 4 high. So I think a bull bar like that in this context, in part is created by bearish firms trying to trigger the buy, knowing that they have enough dollars to short that they’ll be able to reverse the market down.
You may say, “Well that’s not fair. That’s cheating. Would anybody cheat?” Well, it’s not cheating. It’s smart. If you’re able to do it, you do it. And it’s not like five firms get together and say “Hey, let’s buy this, trap out the weak bears and trap in the weak bulls, and then as soon as it triggers the buy, let’s just dump thousands and thousands of Emini contracts short and reverse it down.” They don’t get together and say that, but enough of them understand what’s going on here so that if a lot of them do it, they don’t have to talk to one another. If a lot of them do it, this is what you get.
But the bottom line is, sometimes a good-looking bull bar and a good-looking buy setup is created by bears, who are trying to trick traders into buying high, either buy back shorts or buy into longs.
Is 10 enough of a disappointment bar to make the bears buy back their shorts? Not really, but in general, if we’re at a major support area like the 60-minute moving average and there’s any hesitation, like bar 11, I do not take the short. If anything I would be buying the 11 low – which I did not, but that’s the only trade I would take here.
Sell the close, but tail – inside bar, doji bar. This is not looking all that bearish. I would not sell here. I would still sell the close but we’re right at the 60-minute moving average and yesterday’s low. I think it’s more likely that we’re going to start to go sideways to up a little bit. The bars are not all that big, so not all that bearish, and hesitation bar here, tail here, at support here, at support yesterday’s low – if anything, the only thing I would do at the 11 low is buy. But I did not do that. I would not sell down here.
We’re hesitating at support instead of collapsing through support, so increases the chances we’re going to bounce.
Limit order trading
Okay, we just learned something right there. Limit order bulls. Bulls who did buy the 11 low, made money. You look at that and say “Wait a minute, it’s a bear trend. It’s a Sell the Close bear trend, but the bulls made money” – that’s right. Something’s wrong with the bear trend.
Parabolic wedge, 6, 8. Decent buy signal bar. Opening reversal, 60 minute moving average support, low of yesterday’s support. Okay swing buy, taking a chance it’s the low of the day, but not yet high probability. The math is okay to take that buy, but more likely minor reversal, which means you’ll go up 5 bars, maybe 10 bars, and then test back down to the low close, the 10 close, the 11 close. I would not sell the 12 high even though we’re still Always In Short, but I think a lot of the Always-In bears get out above 12 because this is a reasonable candidate for the low of the day.
The bears, they’re hoping that we get a failed breakout above the top of the triangle and then a reversal down. This is really not a very high probability buy, but I think it makes sense. Already 6 ticks, so a lot of traders scalped out, for 1 point. Bulls want to close above 20, hoping for a gap and a measured move up. Like I said, I’ve been saying, I think we would close the gap below the 7 low and get back up into the upper range.
For the bears. Tail, break out above the triangle, a wedge, three pushes up, 1, 2, 3. Any time you have a double top, you have two pushes up. If you break above the double top and the breakout fails, you have three pushes up – 1, 2, and then 3. So for the bears, this is a wedge short. Bulls want the gap and then the measured move up.
This is the neckline of the double top, so the measured move would be from the double top neckline up here. The fight here is the close. Will it close above the double top, will it close above the moving average, will it close on its high? Or will it close on its low, close below the moving average, have a bear body closing on its low, in which case it would be a reasonable short. We’re in a trading range, chances are it’s going to be confusing and it’s going to disappoint the bulls and the bears.
So maybe close at the 20 high, making traders wonder, is this breakout going to lead to a measured move or not? Is this breakout going to reverse? Is it going to be like 7-8? To sell it, I would like to see at least a 2 tick bear body closing on its low for a wedge bear flag. To buy it, I think the buys already over – you could buy at the market because we’re back at the 21 high. But it looks to me like most bulls scalped when we rallied 6 ticks, which is exactly what it had to do for the bulls to make 1 point.
Bull body, good for the bulls. Close below the double top high, good for the bears. Probably Always In Long at this point. We’ve got a bull close and a reasonable buy setup. But I do not think this is going to result in a big bull trend. I think it’s a bull leg in a trading range. The market’s looking for the top of the range.
Trades, would you talk about your trades today. I honestly don’t remember most of what I did. I took one or two scalps in here. I forgot what I did. I sold that, I got out breakeven there, I think, and I think I sold somewhere up there for a scalp. I sold I think twice on the way down with a limit order, and I think I sold again down here, I bought for a scalp. I remember buying again somewhere in here. I sold here. I bought a couple times on the way up here.
And then through here, usually I would sell here, but there’s so little room to the target, the 34 low, I only took buys in here, and I only took one or two in here. And then I was out trading the euro versus the dollar and gold today. I often trade bonds, but I did not do that today. And today I did not do any swing trades in the Emini.
Question: “In general, is buying or selling the close of large 5-minute reversal spikes occurring near the beginning of the trading day the right thing to do? Example: is shorting the bar 8 close today, using a wide stop the right thing to do?”
In general everyone is looking to do that. If you look at volume here, you would be shorting with 80,000 of your closest friends. So 80,000 contracts traded on bar 8. I never look at volume. You just know the bar is big and the context is good, so you know the volume is big. Just looking at the bar, if you asked me, “Al, how big is the volume on bar 8?”, I’d say “I don’t know, probably at least 20,000 contracts.” I would not have guessed 80,000, but it was 80,000.
So in general, I’m looking for setups and I’m looking for trapped traders. I was afraid that 7 was a trap, the 7 bar bull micro channel in a tight trading range, and it looked like a sucker buy for me. It looks like a buy setup for weak longs. I’m willing to buy, but not there. If it goes higher, then I’ll buy. I’ll buy after I see this.
You say, “Al, there’s not much left to the trade if you wait until there.” I say that’s true, but the probability of making money is 60% or 70%. So not buying here, and then I see this and say “Oh, those bulls are in trouble, and we’ll probably get a measured move down.” So I’m looking to sell. It’s a high probability trade. At least 60%, maybe 70%.
You can make money selling on the close of 8, the close of 9, and the next target down is far enough away for at least a scalp. Those strong breakouts, 28, probably buying the close – at a minimum you’re going to make a scalp. It turns out if you bought it and held, you would’ve made a swing profit on the way up.
End of day review
Do we go higher from here? I still think the odds are we’re going to a new ultimate high. I also think that September will close below its open. I think then that we’re going up near-term, but by the end of the month I think we’ll trade down. Okay, hope everybody has a good night.
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