Al Brooks - Price Action for the Serious Trader

Ch 1 - Price Action

• Think of all bars as either doji ( 1 to 2 tick on 5min) or trend bars.
• Everything is relative.  A series of doji's w/ increasing closes is trending.
• signal bar is the bar you used to enter the setup.  It is usually the bar previous to the one that is currently being traded.  When you begin, you should only take trades that are trend bars.  Place your stop order 1 tick above the signal bar for a buy, or 1 tick below the signal for a short.
• Only goal of trader is figure out whether in a trend or range
• Signal bars
• bull reversal bar
• open near or below the close of the prior bar and a close above the open and above the prior bar's close
• a lower tail that is about 1/3 to 1/2 the height of the bar and a small / non-existent upper tail
• not much overlap with the prior bar or bars.
• When considering a countertrend trade in a strong trend, you must wait for the trendline to be broken and then a strong reversal bar to form on the test of the extreme, otherwise its low probability.
• if there is too much overlap, it will most likely fail because there are no trapped shorts.
• Small Bars
• inside bar
• Inside bar after 1st close below EMA in several hours in a bull trend, will likely test the HOD at minimum
• ii or ii pattern (2 or 3 increasingly smaller inside bars in a row)
• small bar near the high or low of a big bar(trend bar or outside bar) or trading range (esp if a body in the direction of your trade indicating your side has taken control)
• not a good fade setup if it a doji (small relative to recent bars) eps if no body, it is near the EMA and between 9 - 11am PST
• in a trend, a small bar on a pullback is only a With Trend setup.  place stop to open in direction of trade 1 tick above/below the previous bar in the direction of the trend.
• Double Twin (top or bottom) - consecutive bars in a strong bear w/ identical lows (highs) and preferably small bottom(top) tails
• same as above but w/ close and open swapped.
• Reversal bar failure - buy above a bear reversal bar in a strong bull
• Shaved bar - no tail at one or both extremes in a strong trend
• Exhaustion bar - huge trend bar
• Outside Bar - high above previous bar high , low below previous low
• ex: market sold off below a swing low for the 2nd time and reversed up from a trend channel line overshoot, you're looking to buy.  Keep moving a buy stop order 1 tick above prior bar's high until filled
• if outside bar is in the middle of range it is meaningless, unless followed by a small bar near the high or low, which sets up a fade.
• iOi bar can setup an entry in the direction of the breakout of the inside bar.  only take if you think the market can move far enough to hit your profit target.  ie: ioi is at new swing high, downside breakout could be a good short since it likely a 2nd entry (low of the outside bar will probably be the first entry.
• New high Reversal after wedge top usually leads to two legs down.  Then expect a test of the extreme

Ch2 - 

• Trendlines
• All trendlines and their breaks are important, but once you know where they are remove them from the chart.
• Trend channels are useful for projecting price points
• Any big bar should be considered a one bar trend
• Micro trendline  - 2 to 10 bar trendline where most bars touch the trendline
• good for small scalps on false breakouts with the trend
• Horizontal Line
• On strong trend days these should be used for entry with the trend
• Most days are not strong trend days and these should be used for finding failed breakouts which become swing hi and lo
• These lines are especially useful for the  2High or 2Low entry pattern (2High is a higher high than previous bar after a series of continuous lower highs)
• 
  
• Trend Channel lines
• Trendlines are below the lows in a bull, opposite for bear
• channel lines have close to the same slope as the top
• overshoots usually reverse back into trend, but some will result in a steeper trend
• most trendline breaks fail, but they generate a new swing point that creates a new less steep trendline
• shorter term trend channel lines that intersect longer term trend channel lines are good for signaling when to go long
• reversal on channel overshoot may lead to two legs up

Ch 3 - trends

• It's important to recognize trend because most trades should be in that direction.  You should take every With Trend entry.  If you see a trend setting up within the first hour or two of the day, there will likely be several HP With Trend trades.
• Countertrend setups will likely make you miss much of the profitable with trend entries..  The market draws in countertrend traders and if you entry where they exit at a loss it will drive the market in your direction, even though the market looks overextended.
• Best risk/reward(RR) occurs when you enter on the First Pullback after a trendline break, before there is clearly established trend.  This new trend must first break an older trendline or trading range
• Wait for trendline breaks before looking for counter trend setups.
• Whenever you find yourself waiting for a long time for a great reversal, you are oblivious to the trend in front of you.  When a trend is so strong it is nowhere near a trendline, you are missing the most reliable trades that exist.  All minor pullbacks, even a single, small inside bar, are great With Trend entries.
• Signs of strength
• Failed wedges
• Gap
• No climax and not many large bars.  Often the largest trend bars are countertrend, trapping traders into looking for countertrend trades and missing With Trend trades.
• Small pullbacks (if ES has 12pt range, all will be less than 3 - 4 pts)
• Sideways correction after trendline breaks
• Repeated High/Low 2 and M2B and M2S(2 leg pullback to EMA s= short) With Trend entries
• Strong trends you can use a 2 point money stop.
• First time a close below the EMA in a strong trend, it will likely fail and thus a buy
• An outside bar that traps traders outside a trend often leads to a strong trend leg as traders are forced to chase the market up
• Reversal Day
• Some of the strongest trends begin in the middle of the day and originate as trading range breakouts or trend reversals.
• It can runaway where it trends relentlessly with only minor pullbacks,.
• You must enter quickly, even if the new trends looks climactic and overdone and swing most of your position.
• Trend Resumption Day
• trend off the open, sideways action for couple hours, and finally breakout and resumption of original trend.  Midday action sometimes has 3 counter-trend lazy swings, and sometimes the 3rd fails to surpass the 2nd, forming a H&S shoulder flag (most fail and become continuation patterns).  Because the pattern has  3 Pushes instead of two, it traps trader out, thinking that this counter-trend action might in fact be a new trend.  
• The quiet midday period leads traders to give up on the day when it is in fact an opportunity.
• Trending Trading Range Days
• Don't hesitate to trade both directions, fading the trading range extremes
• trend days  are made of a series of 2 or more trading ranges separated by brief breakouts.  On the daily chart, it is clearly a range day.
• It is common for the day to reverse at least one of the ranges in the final 1 or 2 hours of the day
• If it reverses it will likely test the countertrend signal bars in the prior range
• Tight Channels / Spike / Channel bull or bear
• Channel beginnings usually get tested within or day or two, so look for reversals the next day
• Some days have early strong momentum move ( a spike) and then the move continues in a less step channel the rest of the day, but the channel is only tradable in the With Trend direction because the channel is so tight or the pullbacks are not far enough for countertrend to be profitable.
• Do not take countertrend High/Low 2 entries because there will be no trendline break. Their failures are great With Trend setups
• Stairs - broad channel with clear bull / bears active, but one side is controlling
• Shrinking stairs is when the breakouts get smaller and smaller.  It often leads to a 2 leg reversal and trendline break.  
• One stair might accelerate and breakout of the trend channel.  If it reverses this overshoot and reversal will likely result in at least a two legged move.  If it does not the breakout will probably continue for a couple more legs in a measured move(distance beyond channel should be about the same as the distance within in the channel

Ch 4 - pullbacks

• Pullbacks usually have two legs, if the pullback fails, the trend will resume
• Buy the High 2 near the EMA, where most traders think the trend has reversed
• If trend that is now pulling back ended in a climax like a TCL OSR (trend channel line overshoot and reversal)  or any significant trend reversal pattern, the trend has changed and you should not be looking to enter pullbacks in the old trend
• it is over, at least for an hour / maybe rest of the day.  
• After a strong rally, if there is a wedge top, or Lower High after a break of the bull trendline, you should now be looking for shorts and not pullbacks in the old bull
• 1st pullback sequence - bar, minor trendline, ema, ema gap, major trendline
• 1st minor pullback in a strong trend is a 1 or 2 bar pullback ( typically a High / Low 1 entry), which is almost always followed by a new extreme.  It is often a High / Low 2 setup but can be another High/Low 1 in a strong trend
• EMA and Gap Pullbacks
• In a ball or sideways market, and high is below ema, there is a good chance that he market will move to fill that gap.  Sometimes the bar will go above the previous bar, but then the continues down after a bar or two.  If the market again goes above the high of a prior bar, this is a Gap 2 Bar, or a 2nd attempt to fill an EMA Gap, and the odds are excellent that there will be a tradable rally off this setup.
• Gaps above EMA will tend to get fille din a bear or sideways market.
• 2HM (close away from ema for 2+ hours)
• Fade all touches of EMA 
• 1st EMA Gap bar (in a bull buy 1 tick above the high of the 1st bar where the high is below the EMA, esp if this is a second entry).  Swing part of the position because the market may run.  EMA tests are particularly reliable in stocks and often provide great entries all day long.
• Breakout Test - in a a bull reversal, if the high of the entry bar == swing higher low bar (low of this bar), it is the start of the bull move and it will create a measure move of the bull reversal low to the swing high
• High / Low 1,2,3,4
• Reliable sign that pullback has ended in a bull trend is when the current bar's high extends at least one tick above the high of the prior bar.  This High 1 ends the first leg of a sideways or down move, although this leg may become a small leg in a larger pullback.  If the market does not continues sideways or down, the next High 2 is the ending of the 2nd leg.
• There needs to be a a tiny trendline break between High 1 and High 2 to indicate that the trend trades are still active, without this, do not yet look to buy since the High 1 and High 2 are more likely to be part of the same first leg down.
• In a strong upswing, the High 2 can be higher than High 1.  Some pullbacks can continue to extend to High 3 and High 4, it is likely the market is no longer pulling back and instead in a bar swing.
• If you think you are in a trading range, w/ simply a strong new high and then see a Low 2 above the old high, but instead of falling, the market continues up, you should be looking for High 1 and 2 entries.  It is likely that bull strength is long. You should defer looking for Low 1 and 2 shorts until the bears demonstrate enough strength to make a tradable down move likely.
• High 2 variant, there is no high 1, just a bull bar.  Use this bull bar the end of the 1st leg down
• The most reliable High 1 / Low 1 entries occur when there is false breakout of a micro trendline because mTL are only present in the strongest segments of trends.  The one or two bar false breakout that creates the High 1 / Low 1 is a high probability With Trend scalp.  The other time when you need to take these entries is when there is a strong move well beyond the EMA and then a High 1 pullback to the EMA.

Ch5 - Trading Ranges

• 5 - 20 bars is a range
• Generally they are continuation patterns, they often break out in the direction of the trend that preceded them.  They also tend to breakout away from the EMA.  Below EMA => goes down, opposite for above EMA.  If they are far from the EMA then generally retrace towards it.
• Can be easier to read on 15 or 60 chart.
• After a climax, the market can breakout in either direction.  This is because the climax has generated momentum in the opposite direction and you will  not know whether it will lead to a breakout or trend continuation.
• Only fade after a trend bar failure at the top or bottom of the range
• Look for failed failures as a reliable 2nd entry.  
• Barb Wire
• Middle of the day, middle of the day's range, near the EMA.  3 or more bars largely overlap and one or more is a doji.
• odds favor a With Trend breakout
• results in repeated losses for breakout traders.  Wait for the 1st sign of conviction w/ trend bars, but odds are high it will fail, so fade it.
• If a bull trend bar that breakouts out to the upside by more than a 2 ticks, as soon as it closes, place an order to go short 1 tick below the breakout bar.  If short entry fails, reverse the order at 1 tick above the high, which is a breakout pullback entry.
• If a trading range sets up near the EMA, never look to buy if the bars are mostly below the EMA, same w/ short if bars are mostly above.  The move will most likely set up some sore of M2 entry in the direction of the EMA.

Ch6 - Breakouts

• Breakout can be of anything, trendline, trading range, hi/lo of the day / yesterday.
• Fade it if it fails, as most breakouts do, and re-enter in the direction of the breakout if the failed breakout fails and becomes a Breakout Pullback
• When a trend is strong, enter With Trend on a High / Low 1 or 2 pullback, before or after the breakout, not on it.  However, once u recognize that a strong trend is underway, just enter since every tick is  a With Trend entry w/ a reasonable swing stop.
• Breakout Test
• Breakout Pullback comes within a few ticks of the breakout entry price, it is a Breakout Test.  The test bar is a potential signal bar, so place an entry order 1 tick beyond the high in a bull trend.
• Breakout tests often run the stops of traders, so depending on the instrument, place your stop accordingly.  GS is notorious for running breakeven breakout stops.

Ch 8  - Trend Reversals

• Only buy after major trendline break and wait for the test of the old extreme
• Typically, the initial move will break the trendline and then test the old trend.  Traders will look to initiate countertrend trades on this test
• In a bear trend, if there is a sharp move upwards that extends well beyond the bear trendline, traders will look to buy on the 1st pullback, hoping for the 1st of many higher lows.  Sometimes, the pullback extends below the low of the bear trend, running stops on the new longs.  If this lower low reverses back up within a few bars, it can lead to a strong swing up.  However, if the lower low extends too far below the prior low, it is best to wait for another break, upward momentum surge, and then higher or lower low pullback before going long again
• Most trends end with a breakout of a trend channel.  Either an overshoot that fails and followed by a reversal down and trendline break, or market can fall through trendline without overshooting the channel line.  if the bull ends with a failed breakout of the channel line, there will be 2 legs down, and the 1st pullback will almost always form a Lower High as its test of the bull high. 
• If the bull ends with a trendline break, the test of the bull high can either be a Higher High or Lower High and each occurs equally frequently.  Since at least 2 legs down are expected, a Higher High should be followed by 2 legs down.  A lower High maybe followed by just a single leg, since the first leg formed the Lower High.
• In a bear after a Lower Low reversal, it is imperative to buy the first Higher Low because this reinforces the premise that a major bottom is in
• Trends last much longer than most trades would imagine, most reversal patterns fail and most continuation patterns succeed.  Be very careful trading countertrend based on reversal pattern
• Most minor trend channel line overshoots as With Trend setups and enter where the losers are exiting on their protective stops
• Trend reversals are often gradual and form patterns like Double Top Bull Flag, Spike and Trading Range, Spike and Channel
• Major reversals from bear markets are volatile with large bars and several pushes up and down.  People think that the worst is over and realize they are too early and sell out quick.  This can happen several times before the bottom is in and accounts for why many major major reversals end with large range bars and either a a Failed Flag or 3 Push Pattern
• Signs of strength in trendline break
• Covers many points
• Goes well past EMA
• in a bear reversal, it extends below the final Higher Low of the bull and in a bull reversal, it extends above the final Lower High of the bear
• Last many bars ( 10 - 20)
• Other strong prior trendline breaks
• reversal back to old trend extreme lacks momentum, shown by overlapping bars with many being trend bars in the new direction
• reversal back to the old extreme fails at the EMA or the old trendline does not get close to the extreme
• Strong Reversals
• Strong reversal bar
• 2nd entry signal
• Trap bar(trapping traders out) forming a small Higher Low in a new Bull or Lower HIgh in a new Bear
• Began as a reversal from an overshoot of a trend channel line from the old trend
• Reverse a significant swing high or low
• Break well beyond the trendline of the old trend
• Break EMA by many ticks and close beyond it for many bars
• Break above the last Lower High of the prior bear or Higher Low of the prior Bull
• The pullback from the 1st countertrend leg forms an M2B or M2S
• The first leg lasts many bars and reverses many bars of the prior trend
• Trending anything, closes, highs, lows or bodies
• Trapped Bars
• Prior trend bars with reversal of all those bars in a single bar, which is again reversed
• Failed Low 1 / High 1 that is a small Higher Low.
• CounterTrend spike w/o pullback - a large spike down that is followed by a slow rally that retraces most of the spike will usually be followed by a 2nd selloff that tests the low of the initial spike.  Spike is not just one bar, it is many bars in the same direction that are reversed.  Usually it exhibits a curved shape
• Climax Reversal - does not have to have a pullback that rests the extreme.  
• Reversal targets are the highs of the bull signal bars after a bear
• Wedges - usually lead to reversals after overshooting a trend channel line
• wedge might only form with the candle bodies
• if it fails, the market will usually run up quickly in a measured move, about the height of the wedge
• usually lead to two legs down
• Expanding Triangles
• type of 3 push pattern that can be continuation or reversal, with each push greater than the prior.  It's strength comes from trapping traders

Ch 9 - Minor Reversals: Failures

• A failure is any trade that does not reach its goal, resulting in either a smaller profit or loss.  Failures are excellent setups for trades in the opposite direction since the traders who were just forced out will be hesitant to re-enter in the same direction, making the market one-sided.  As they exit with losses, they drive the market even further in the opposite direction.
• Most failures become a 2 legged continuation pattern
• Most reliable reversal is one that takes place at the end of a pullback in a strong trend, near the EMA because you are entering in the direction of the larger trend.  
• One Tick failure  - (like a 1 tick false breakout)
• big traders view stops as good short setups, knowing that weak hands will be buying.  It is a reliable sign that the market is going the other way.
• The price will be hit by 1 tick and then move the other way quickly
• Know where traders will place their stops and do the opposite there
• Failed high / low 2
• if it fails there will usually be 2 more legs with Trend.
• usually failed if there is no strong trend line break.
• Failed Higher High / Lower Low breakouts
• most days are trading range days so you can fade swing high an low
• when price goes above swing high and momentum is not too strong, place an order to short the Higher High at 1 tick below the low of the prior bar on a stop.  If not filled after the bar closes, move it up until the high has so much momentum you need a 2nd entry to confirm.
• First failed breakouts below a swing low is a Lower Low buy setup.  Odds are higher if setup bar is in the direction of your entry, so its best to wait for a bull reversal bar before buying.
• Failed Trendlines and Trend Channel Lines
• failed trendline usually means a reversal, if that reversal does not appear or is weak, look to short again
• failed trend channel line means a strong continuation of the trend.  look for with trend entries
• Failed Reversals 
• Place entries where other traders place their stops for good scalps or a 2 legged move.
• Always scalp at least part of your position and move to breakeven if the pattern fails
• Failed Final Flag: Tight Trading Range
• Horizontal trend that extends sideways for several bars, breaks a trendline, and then breakouts to a new extreme, but then quickly reverses in the next few bars.  
• If this reverses, it will lead to 2 legs down
• Mostly horizontal and sometimes as simple as an ii pattern
• Failed Wedges
• After a wedge reverses, the reversal fails, and the trend resumes only be followed by a failed breakout to a new extreme.  This is a failed failure, which is a second signal and likely to result in a two-legged correction.
• Wedge top in a bull and market drops, then reverses strongly to a new high.  That new high fails, this can lead to a strong bear move since it is a 2nd failure by the bulls to push beyond this price area.
• Failed scalps
• If scalp only moves 5 ticks instead of 6 ticks for ES, this is a failed scalp.  After a series of successful scalps, when one fails that means shorts will exit at breakeven.  Usually this coincides with something (LOD, trend channel line)

Ch 10 Day Trading

• Trade SPY instead of ES at first to get used to it.  Don't scalp unless your commissions are <= $1
• Have several stocks on your watchlist and watch for patterns to swing those stocks
• You must have 2 reasons to enter a trade
• Reversal Bar
• Good Signal Bar
• EMA pullback in trend, especially if two legged (M2B, M2S)
• Breakout Pullback
• Breakout Test
• High Low  2 or 4 (must have prior trendline break if fading a strong tend)
• Failure of anything: Prior High or Low, flag breakout, reversal from trendline overshoot or TCL, scalp 5 tick failure
• Except for these cases, you must have 2 reasons
• anytime there is a strong trend, you must enter on every pullback that does not follow a climax or failed flag breakout, even if the pullback is just a High or Low 1
• If there was a TCL OS and good reversal bar, you can fade the move
• In a trading range or trend, there is a 2nd entry
• Anticipate trades so you're ready to place your orders
• ex: After bear trendline break,  there is a 2 legged break below a major swing low, or an overshoot of a trend channel line, look for a reversal, or if there is a ii breakout, look for a reversal.  
• Once you see outside bar or Barb Wire, look for a small bar at the extreme for a possible fade
• If there is a strong trend, be ready for the first EMA pullback and any 2 legged pullbacks to the EMA and for the 1st EMA Gap pullback
• Enter on stops to go with market momentum
• After you enter a position, the initial stop is at 1 tick beyond the signal bar.  If the signal bar is too large, use a 2 point stop or 60% of bar range.  It depends on the volatility for the day.
• Try out some trades, and see what works best, sometimes its a 2 point stop, other day sit may be 4 or 8 points
• After the entry bar closes place your stop at 1 tick below the entry bar.
• When a protective stop is hit before making a scalper's profit, you were trapped, and so reversing on the stop is occasionally a good strategy.
• ie: a failed Low 2 short in a pullback in a bear is usually a good reversal into a long trade.  
• Stop run in a tight trading range is not a reversal
• When to enter on a limit order:
• 2nd entry after TL break and strong reversal bar.  
• ex: if you just bought and the market test the exact low of the entry bar several times over the one or two bars consider placing a limit buy order to double your position at one tick above the low of the entry bar and risk just two ticks

Ch 11 - The First Hour

• Best trades initially are usually related to patterns from yesterday 
•  look for failed breakouts, 
• breakout pullbacks, 
• Trends from the Open and their first pullbacks, 
• highs / lows - usually get tested within the 1st hour for a breakout or reversal
• swing highs and lows
• trendlines
• large flags
• trading ranges
• These setups you usually lead to one extreme of the day and are important swing setups for part of your position
• 
  
• Look for reversals in the 1st hour as they are the rule not the exception.  Exception is a trend.
• 3 minute chart trades well for the 1st hour, but it is prone to more losers
• Trend Bar on Gap Open, 1st or 2nd Bar
• If there is a gap open and the first bar is strong, small tail and good size body trend car, trade its breakout in either direction.  If you enter and your stop is hit on the next bar, reverse for a swing trade because the market will usually move more than the number of ticks you lost on your 1st entry.
• If there is a gap and there is a trend bar in opposite direction of the gap, the gap is usually closed.  Traders will be taking trades at the top of the bar.  If it fails, they will cover leading to a reversal.

Ch 12 - Daily, Weekly, Monthly

• Same Ideas apply to these as intraday
• Huge Volume Reversals
• When a stock is in a bear and there is volume 5 - 10x normal, the bulls may have capitulated and a tradable bottom may be present
• Traders not necessarily looking for a bull reversal, but there should be a 2 legged reversal to the EMA

Ch 15 - Best Trades

• When first starting don't trade more than 2 contracts no matter how large the account
• If market is trending, buy every high 2 where the setup bar touches or penetrates the EMA.  Move your stop below the entry bar.  Scalp out half and move stop to breakeven.  Add on every opportunity.
• When market is not trending, fade 2nd entries at new swing high or lows.  These days will have several swings lasting 5 to 10 bars, and trendline breaks, leading to an opposite swing.  If the momentum is strong, wait for a 2nd entry.
• Once profitable, focus on volume of trades rather than new setups.  25 contracts at 2 pts / day = 500k / year
• Avoid Barb Wire and 1 minute charts
• Best reversal pattern is the trendline break w/ strong momentum followed by a 2 legged test that results in a new extreme.  The 2 legs of the new extreme (Higher high / lower low) are effectively 2 attempts to reestablish the old trend.  The failed 2nd attempt has a high probability of leading to a strong reversal that should have at least 2 legs up and results in a new trend.
• Trading stocks in the 1st hour. 
• Focus on failed breakouts and Breakout pullbacks from patterns yesterday.  If there is a strong reversal bar, take the first entry.  If there are 3 or more largely overlapping bars, wait for a 2nd entry.  After you have a scalpers profit, move stop to breakeven and take off half to third and let the rest ride all day or until a very clear reversal happens
• Major Reversals
• reverses a trend that has been in effect for a couple hours or days.  Best entries have a significant trendline break before the setup.  Enter on a pullback that tests the trend extreme (Lower High or Higher High in a new bear, opposite for new bull).  If it overshoots too far, the trend has resume and wait for another trendline break
• Pullbacks in  a Strong Trend
• Most days it will not be obvious the market is trending until after the first 1 - 2 hours
• Look for a 2 legged pullback to the EMA.
• Swing every With Trend trade on a strong trend day
• At every new setup, you either add back your scalp or place a full position on top of your current open swing position.  Once you scalp out part, your swing portion is twice the size of your normal swing
• Micro trendline failed breakouts form High 1 long entries in a bull and Low 1 short entries in a bear that are With Trend entries.  If the entry fails a bar or two, you have a failure of a failed breakouts, which is a Breakout Pullback
• M2S and M2B may not look like good entries, but you must trust they hold in a strong trend
• When there is strong momentum look to buy a High 2.

Trading Ranges (different book)
Chapter 11 - Trends Converting to Trading Ranges

• Any pullback is a trading range on a higher time frame chart
• If a bear trend forms a downward sloping wedge, the market will try to correct to the top of the wedge where the earliest bulls began to buy.  If the market can reach there, the bulls will exit with a breakeven trade and not want to buy again until the market falls.  They expect the original low of the wedge will support any pullback and buying at that level will give them a defined / limited risk.
• the earliest signs of 2 sided trading allows perceptive traders to anticipate when a pullback might form and how far it will extend.

Trade management

• Every trade has an 'expected' probability.  High 2, Low 2, M2S, ect... are all about 60% profitable swing trades that should have a rewards 2x the risk.  You should understand that if you risk X points, you need to be taking trades that yield at least 2X points.
• 10 pts / day is totally reasonable in the Emini
• Many swings turn into scalps as they trade doesn't work out

The Master Swing Trader - Alan Farley
Ch1 Trading the pattern Cycle

• Swing traders seek to exploit direct pirce thrusts as they enter positions at support or resistance.  They use patterns to locate and execute short-term market inefficiencies in both trending and range bound markets.
• Stocks range bound 80% of the time, trending 20%
• Always check all time periods, especially the periods longer and shorter than your trading period.
• The most profitable positions align to support-resistance on the chart longer period and display low-risk entry points on the shorter chart period.
• Few executions will align all these periods.
• Markets need leadership
• Try to identify the leader as early in the day as possible
• Sometimes its Dow, Nasdaq, SP500, or a specific sector
• When a macro event appears, think about taking the day off unless a clear strategy emerges
• Reward / Risk
• prepare to experience long periods of boredom between frantic surges of concentration
• trade execution will release adrenaline regardless of whether the position makes money or loses.  the primary motivation must be to aggressively take money out of someone else's pocket
• careful stock selection controls risk better than any stop loss system
• every setup has a price that violates the pattern.  the measurement from this breach to the trade marks the risk.  look for levels where price must move only a short distance to show that the trade was a mistake.  limit execution to positions where risk remains below an acceptable level and use profit targets to enter markets that have high risk reward ratios.
• Mastering the trade
• Both negative and positive feedback conditions produce rewarding trades, but confusion between the two can lead to major losses.  Classic swing strategies work best during negative feedback, while positive feedback supports profitable momentum entry. 
• Enter positions at low risk, exit them at high risk
• Multi trend technical analysis and cross-verification techniques identify probable reversal points well in advance of price action
• Avg win must be much greater than avg loss, or winning % must be much greater than 60%.  Improve by reducing losses first and increasing profits second.

Ch 2.-

• preparing for the market day
• The closing bell signifies the start preparation for the next day.  Adjust watchlists, add / remove opportunities, review your trading day with complete honesty
• Review economic calendar for important economic reports.  Exercise great caution on fridays that release unemployment report
• Avoid information overload
• Support / Resistance
• Can be a price that cannot be crossed, or elasticity that can be stretched but not broken.
• Swing traders earn their livelihoods as they find and execute setups along S/R lines
• cup and handle, triple top / bottom breakouts
• consider the benefit of contrary entry on classic S/R moves
• a trend line break only means the current trend is over, most likely leading to a range bound market
• The Charting Landscape
• Use 3D chartings (look at charts one period higher and lower than current chart to confirm)
• Trading indicators/oscillators are only useful after identifying price / volume bars patterns.  They serve as a confirmation that your price observation was correct.  If the oscillator does not confirm, then do not take the trade, unless you're very experienced
• MA Ribbons
• Use MA's for intraday, and EMA for daily or higher.  
• expect choppy actions when the MA's criss cross out of order.  Use the standard 20, 50, 200 for daily, use 5, 8, 13 SMA for 1min, 5min, and 60min charts
• Candles - Most reliable when near the outside of BB
• Chart Polarity - Identify the current environment bull, bear, neutral on every chart time frame
• Expansion / contraction -bars tend to expand rapidly into a climax through rallies and selloffs.  then congestion sets in and volatility drops as bar ranges contract along w/ ROC.  Often an impending price move is signaled by this, and many math indicators will be in neutral zones.
• These are high-reward, low-risk entry points and entry permits a fast stop loss
• Short covering - Consider closing positions when the market prints a wide range bar that departs substantially from routine price action, but does not occur at a breakout point.  
• Building Watchlists
• Keep a core group of 50 to 100 stocks, and follow them on a tick by tick basis.  Also review their charts on a nightly basis.  Put them in different groups.  If this is too big, cut it down to 20 to 30.
• Out of the 2000 liquid, moderately priced stocks, use a scan to filter your trade setups.
• Setups that look good the day before, must also look good as the market opens.
• Don't trade the most liquid stocks (INTC, MSFT, DELL, CSCO) .  They're notoriously hard to trade

Ch3. Analyzing the Market

• Bottoms - 
• Double bottom, but with 2nd bottom >= to current bottom.  Usually 2nd bottom will be higher than first, but will occur more slowly.  Often resistance occurs where the center top is, and price consolidates before breaking out.
• Rounded Bottom - Wait until momentum clearly shifts toward positive.  Best used to identify break markets that wash out and gear up for a bull leg.
• Big W pattern - double bottom, and price retraces between 62 and 38 fibs before completely retracing.   Often congestion develops once pattern has fully retraced.
• Stop set at first bottom.  
• Very hard to time bottoms.
• H&S bottom must be perfect - neckline must line up, shoulders must be same price, breakout must pierce known resistance(MA / gap) on high volume
• Breakouts - 
• Sharp breakout gap on heavy volume.  If not high enough volume, gap will quickly fill.  Non-gapping, high volume surges provide a comfortable  breakout floor but support is less dependable.
• Dip Setups - Moderate strength often setup good pullback trades.  Uptrend faces considerable obstacles and should force frequent dips that mark good buying opportunities.  Identify profitable resistance zones in advance.  Look for price to shoot past the top BB and this should provide a turning point to natural support.  Enter at support.
• Price surge on MACD / ADX, and vertical rallies erupt.  Dip setups won't work.  Shift to a lower time frame to find small support pockets.  Volume peaks as a smooth wave of increasing volume which draws to a climax often culminating with a price spike.
• Rallies - 
• Elliot Wave Theory.  Target the 3rd wave, it is the most powerful.  Use 3D charting to find multiple overlapping waves (ideally two 3rd waves)
• Price will reach into broad resistance and it should gap over resistance.  RSI and other strength indicators should be in the middle of their ranges
• 4th wave corrections setup the final 5th wave.  Both aborted waves and parabolic rallies occur in this wave and brings in a sense of invulnerability.
• New Highs -
• Let accumulation - distribution guide.  When it is lagging, price will move up in stepped ranges before surging upwards.  Other issues will go up vertically immediately on breakout if acc-dist confirms
• Use bottoms to congestion, for the measured move after a breakout.  Low to breakout to expected move is about 1.38.
• Use MACD histogram rising on price pull backs to enter long
• Avoid short sales until price and momentum peak.  Picking a top is a loser's game.  Short after momentum drops but prices stays high in a rangebound market (SPX rangebound?)
• Parabolic moves cannot sustain themselves, slow steady rallies last longer
• First major break of a trendline signifies end of the trend.  This just means it is possibly rangebound.  Exit positions until conditions favor rapid price gains again.
• Tops - 
• H/S patterns and double tops occur when crowds slowly lose their faith.  Volume should decrease in the 2nd shoulder, this increases odds of neckline break;
• Stay away from ascending H&S neckline breaks, descending is fine
• Healthy trends find support at 62% fib before continuing.  100% retracement violates the primary price direction.  Allow for whipsaws at all fib levels since they are well known.
• Shock events can kill enthusiasm 
• Reversals -
• Descending Triangle
• BB contract, scalpers are pushing around the stock, momentum is fading
• Use upticks to enter short sales and counter any weak bull response.  As horizontal support fails, sell stops trigger below support and price declines rapidly
• Double Tops - Often this is the exactly opposite of the Adam / Eve bottom pattern
• The more violent the sell off at the first top, the more likely it is the top cannot pass the support of the last high
• Buying interest wanes as price does not support new highs
• Swing traders can sell short into the 2nd rise of the double top if the exit when price violates first high
• triple tops should rarely be sold short because accumulation has built up (daily MFI 30)
• Declines
• Volume repeatedly surges through waves of selling pressure while false bottoms print and quickly fail.  Violent covering rallies erupt to shake out poorly time short sales and offer hope to wounded longs.  Price carries past rational targets, panic builds, and then a bottom is formed.
• Price Breaks
• All time high is different than retracing old numbers.  No built-in supply of losers exists within tha time frame.  During these momentum markets, swing traders, may need to enter near highs rather than pullbacks and manage risk without close support under positions
• 5min and weekly pattern - tight flag a the top of an expanding price right after a breakout (reverse wedge?).   Congestion at the top of the range generates strong demand that attracts the needed greed.
• Breakouts / breakdown attract dumb money.  Insiders initiate whipsaws after each volume surge to shake out weak hands.
• Trends -
• Volatility, bar width, and volume all decline as a range bound market nears its conclusion.  This empty zone(EZ) allow for a low risk entry where a small move against the position signals a violation
• 
  

Nicholas Darvas - How I made $2M

Ch1.

• Got very lucky and made money in one stock, then became interested.  It was a canadian mining stock, so he kept looking for similar ones.  Eventually started taking tips from patrons in his restaurant and realized he kept loosing money following their advice

Ch2

• Got Wall Street research and a broker and tried following their tips but it didn't work either.

Ch3

• Mortgages his house to invest in a stock he thinks is going up, and it goes down about 20%.  He almost goes broke.  Then he slowly starts developing his theory.

Ch4 - Box Theory

• Stocks trending up move in trading ranges (boxes).  Once they move from one range to the next they shouldn't fall back into the previous trading range.  If that happens you should sell.  The range he uses is based on the daily chart hi and low.  Ranges appear to be 5 - 10 day, and every stock has their own characteristics.  Time frames were not necessarily important.
• The boxes on the chart should stack up to form a pyramid in time.
• It is normal and beneficial for stocks to have swing lows because it shakes out weak hands and enables the next jump upwards.
• Lessons:
• You will only be right about 50% of the time
• must look at stocks w/o emotions or attachment
• must reduce risk as much as possible
• He would buy on breakouts with stops in the previous range
• Look for high volume on the breakouts that hold (large % of the float)
• Keep stop below the box (it looks like he kept it about $1 below)

Ch 5

• He travels around the world for his career and he can only get Barron's weekly articles and a few stock quotes from his broker.  This teaches him that he can ignore most of what is going on and still pick decent stocks.
• He makes 'Cause of Error' tables that show the stock, price bought / sold and the cause of error.  These tables became one his most important tools.  He describes this like driving a car.  You may have knowledge how it works, but you need to develop a feel for how hard to press the accelerator / brakes, and what a is a safe distance to trail the preceding car.
• Errors: bought too late, stop - loss to close, overlooked weak market conditions, bought on decline, wrong timing

Ch 6 - During the Baby bear market

• Technofundametalist view - He would select stocks based on technical action, but only buy when he could give improving earning power as the fundamental reason for doing so.
• Takes a 20 year view of industries for those whose future he could expect revolutionary new products that would sharply improve the company's earnings.
• At this time the industries were electronics, missiles, rocket fuels (which were very small cap stocks)
• stocks go in and out of fashion ever couple years, just like women's styles
• Find stocks that would be hoisted up because they stirred people's imaginations of the future
• Not interested in the company's products, and didn't want to know in case the extra info would inhibit him.  Only care about whether the company belong to a new vigorous infant industry and whether it behaved in the market according to his requirements.
• Watch these stocks weekly
• During this bear market he noticed that most companies who didn't fall as much had earnings trends that pointed sharply upwards.  The capital was still following the eps improvements.  He would only look for improving earnings power or anticipation of it.
• That was the position for which I had now trained myself for five years.  My Canadian period taught me not to gamble; my fundamentalist period taught me about industry groups and their earning trends; my technical period taught me how to interpret price-action and the technical position of stocks - and now I reinforced myself by piecing them all together.

Ch 9 - My 2nd Crisis

• Gets a office on wall street at a brokerage and then loses his touch because he is too close to the quotes.  Loses 100k in 1 month from the 500k he made
• He moves to France and instructs his broker to just give him the daily quotes, and he will read his weekly financial paper to get new ideas
• Also, my brokers must never quote any stock to me, except the ones I asked for. They must not tell me about any new stock because that would immediately come into the rumor class. I would pick new stocks myself, as I had always done, by reading my weekly financial paper. When I saw one that interested me and seemed to be preparing for a rise, I would ask for quotations. I would only ask for one new quotation at a time. Then, as I did before, I would study it carefully before deciding if it was worth going into.
• After a month he starts to get his 'feel' for the market back

His TI investment was probably a micro-cap company at the time.  It looks like it would be about a 15M market cap now.

http://finviz.com/screener.ashx?v=111&f=cap_microunder,ind_stocksonly,sh_price_o15&ft=4&o=marketcap