Al Brooks Videos

• No emotions.  If you feel emotion when you are going to place a trade, don't trade it.
• Trade Small enough so you feel no emotion
• Great traders 
• Only talk to support / resistance and momentum
• No indicators or candle stick patterns
• Trade Management is the most important thing to making money
• Signals only work 40 - 60% of the time
• Get used to losses
• Trends
• Pullback is a short trading range in a trend.  Breakout likely in trend direction
• Long trading range (15 - 20 bars) loses its trend direction and more likely to break out either direction
• All trends start with a spike, and transition to a channel.  
• You need to know which part in the cycle you are in, including the nested pattern within the larger pattern
• Spike phase 
• you need to get long at the market
• smaller size to accomodate wide stop
• tight channel is a strong bull
• Weak bull is a channel
• if the swings are big, trade it like a trading range.  
• Buy low, sell high
• trade both directions
• Bull Trend in trading range, 
• take normal buy signals
• sell 2nd entry shorts and other reversal patterns
• scalp
• Bull Pressure (opposite for bear)
• More bull bars and they are bigger
• Consecutive
• Small tails on the highs, and tails below bars
• Follow through after breakout
• Consecutive bears decrease and get smaller
• Within trading range
• Look for which case is stronger based on the above
• No overlap between 3 bars back
• Always In
• If you had to choose a direction to be in, at the market, which side will you choose
• Bars
• Every bar is either trend Bar or trading range bar (doji)
• Every Trend Bar (or series of trend bars) is a: ...(only context tells you which one)
• Breakout
• Climax
• Spike
• Gap
• Setups
• Context is the most important
• You need prior evidence of your position
• 80% of reversals in a strong trend will fail, dont take reversals
• Weak trend and big swings, take both sides
• Selling in a weak bull
• need strong bear signal bars
• and selling pressure
• Weak Setup
• context and signal is weak, just wait
• 2nd entry or strong breakout
• If unsure
• Use half size with wide stop
• If stopped
• Double position to normal size.  However, if stopped again dont take 3rd signal since most likely fighting a strong trend
• Take profits at 'actual risk' measured move up (price from 1 tick above to 1 tick below lowest stop that would not have been hit)
• Just because there is a reversal pattern in a bear market, that just means it is a better entry to short.  
• Traders may not cover on the first attempt at to break below their position, but most will cover on the 2nd one
• Bull Signal Bar
• At least close above midpoint and close above open
• Close well above prior bar
• Lower tail about 1/3 to 1/2 height
• Small upper tail
• Little overlap
• Follow through is also strong
• Close reverses the high of many previous bars
• 2 Bar Reversal
• do not have to consecutive, on a higher time frame chart, they form 1 bar
• All Expanding Triangles are considered major trend reversals if they're accompanied by strong reversal bar
• Pullbacks
• Strong trends usually only have 1 leg pullback
• Weak trends, have 2 pullbacks.  At most 4 pullbacks.
• The high1, high 2, ect...don't necessarily have to break above the current bar, they just need to reverse the leg down
• Pullback ends when current bar high extends at least 1 tick above the high of the prior bar
• Wedges
• Usually Low 3 and High 3, 3 push patterns (reversal patterns)
• Double bottom is a high 2 (buy setup), Double Top is a low 2 (sell setup)
• 5 min trading range can be a pullback on a higher timeframe
• Channel
• Market is always in a channel
• Micro channel is different than regular channel
• Redraw the channel as it gets broken
• Eventually it will become a trading range (even if only 1 bar)
• All channels function as the opposite trend 
• Bear channel is essentially a bull flag (it will eventually breakout to the upside)
• Shrinking stairs, breakouts are getting smaller, so you may be able to fade them because bulls/bears losing momentum

12 - 22

• MicroChannel
• No pullbacks below the low of previous bar for 2 - 13 bars in a bull
• Weak bull you buy on 2nd entry or double bottom
• Strong bull, you buy above the high on stop, or below low with limit
• Trading Range
• Starts as a pullback, but after 20+ bars the trend has lost its direction.  Upside or downside breakout equally as likely
• 80% of breakouts in a trading range fail.  Markets will race to the top and then fail and reverse
• There will be many attempts within the trading, and its hard to tell when it will happen.  When you look back it is obvious where the trend began, but at the time it is confusing
• Vacuum effect
• Race to a support or resistance, or measured move, or trendline
• Once it hits, market will reverse back.
• Institutions waiting for the spike up because they know it will get there and can get better prices
• Beginners see the move as very strong and ignore the bars to the left and want to catch the 2nd leg
• Buy with limit order below the low of the bar
• Range Breakout
• Strong Breakout
• Weak Channel
• stop goes below breakout
• Major Trend Reversal
• TL break, retest and reversal
• On the first trend break, it often moves to the MA before continuting w/ trend and then failing w/ a higher / low top
• Final Flag
• Bull Flag that doesn't continue in a trend
• bull trend for many bears (30+).  Forms a High 2  / triangle / trading range just below resistance
• wait for failed breakout and a reversal down
• Wedges
• Down sloping wedge usually leads to a bull breakout 75% of time.  25% it fails
• Failed 
• Measured move from start of wedge to end of wedge.  Then two legs in the other direction
• Successful
• Moves to top the wedge as 1st target, and then another measured move up as 2nd target
• Wait for reversal pattern at the apex
• Double Top / Bottom
• Every double top bottom is a high 2 buy or low 2 sell.  
• Take 1/2 profits at 2x times risk (ie: stop = high + 1 tick - low *2)
• Expanding Triangle
• Always a major trend reversal
• Reverses the trend at 3rd test of trendline

23 - 32

• Climax
• Always end at support or resistance
• Nobody looking to buy for many points, or 10 - 20 bars
• Swing vs Scalp
• 40 ticks+ = swing
• Swing = profit target at 2 times risk
• Use measured moves to find where traders will take profits
• Brooks uses actual risk to find the measured move rather than initial risk

39 - 46

• Strong Bear / Bull Breakout
• Enter on stops in trend direction, look to enter on micro trendline pullbacks
• Only enter in trend direction
• Buyers / Sellers are below / above so enter on stops above / below the pullback bars or on high 2 / low 2 setups
• All will transition to channels and the channels then become a part of a larger trading range
• Stops go below swing points and below higher lows once your trade is positive 
• Take profits at reversal bars or strong resistance
• Strong Bull / Bear Channel (tight channel)
• Enter on stops. Trade in direction of bull / bear channel at obvious support or resistance of the trend channel lines.  
• Enter only in trend direction
• Wedges and triangles are also part of this group
• Use more conservative setups, ie: high 2, low 2 setups
• Stops go below entry bars  / signal bars. 
• Aim to take profits at new highs or resistance
• Weak Bull / Bear Channel and Trading Ranges
• Buy on limit orders below / above bars when you want to buy / sell
• Reward is 2x your risk
• Buy at the bottom of the range, sell at the top
• Eventually you will be wrong, but you want the number of times you were correct to greatly outnumber times you were wrong
• Opening Ranges
• You must be looser with your criteria to take trades, usually ends around 8:30pst, however 7 - 10am is total range
• 20% of the time high / low formed in first 5 mins
• 50% of the time in 1st hour
• 90% of the time in 2 hours
• Breakout or failed breakout
• most of the time it will fail
• Swing trade from the breakout or breakout pullback, or failed breakout
• Lots of 2 sided trading means it will probably be trading range days
• Climax that accelerates near the end of the day often reverses

47 - 53

• Swings in middle of the Day
• Starts after opening range swing usually after 8:30am
• Weak Channels are common, however trading range and trend from the open do occur
• 80% of reversals in a strong trend will fail
• Swings at the end of the day
• Setups
• Look at how many bull bars / bear bars have occurred in the middle of the day and in a range to give a clue how the day might finish
• Higher highs / lows
• Consolidating above / below MA
• Targets for close
• Final hour usually tests support / resistance for the day
• Look for measured move targets
• Previous days, open / close
• Prior swing high / low (and untested big trend bars)
• Trendlines, Channel lines
• trading ranges above / below
• Final hour of the week
• Open of the week
• High / Low Close of last week
• Look to take profits if there is a buy / sell climax at the low or high of the day if moving from one side of the range to the other.  It will often lead to a 10 bar / 2 leg correction
• Best Trades
• Major Trend reversals, 
• wait for TL break 
• Should retrace to the movina avg
• a 2nd entry after a higher high or higher low, enter on stop
• Breakouts
• As long as it is strong, get in immediately
• Usually a measured move target
• Trading Range Reversal
• Make sure market is actually in a range, 80% of breakouts from the range will fail
• Wait for 2nd entry so momentum in the down is fading
• Often there is a new high or new low that fails, buy after the failed new low, sell after the failed new high
• Pullbacks
• If there are pullbacks, you're in the channel phase
• swings in strong trends, scalps in weak trends/ trading ranges
• Strong trends you buy high 1
• Weak you buy high 2, wedges, or triangles

How to make money in stocks - good times and bad - O Neil

Ch1 'C' QoQ eps change

• 5 - 10% is not enough to fuel change, it needs to be above 25%
• Of all big gainers between 1970 and 1982
• Median was 34%
• Avg was 90%
• 76% were over 10%
• 75% showed eps increases avg 70% in the last report before the stocks began a major price advance
• Only 2% of stocks show this kind of gain.  Success is built on dreams
• Sales and Eps should be similar (so profit margins are still around the same)
• Omit 1 time gains
• Limit your search to QoQ of > 20%.  Apply this to one or 2 previous quarters
• Look for accelerating eps growth
• 2 qtrs of major eps decleration may mean trouble (ie: 50% to 15%)
• Industry should have at least 1 other stock showing good eps
• 4 weeks Before eps report, stocks participants start making trades for the eps report.  It may give you a clue

Ch2 'A' Annual Earnings Increases

• Each eps should be greater than prior years, 1 may be done as long as it quickly recovers
• Look  for 25% to 50%
• Stability of eps over the 5 years
• PE ratio mostly get depressed during bear markets, but the avg was 20+.  

Ch3 'N' New product, management, high

• 95% of big winners had a major new product / service, new management, or important change in their industry
• Buy on the breakout.  The stock should be close to or actually making a new high after undergoing a price correction and consolidation.  Consolidation can last from 7 - 8 weeks (normal) to 15 months.  As it emerges from this base, it should be bought just as it is starting to breakout.
• Avoid buying more than 5 - 10% off the base

Ch4 'S' Supply & Demand

• Low float is better than big float
• Large % ownership by top mangement
• Today's hot product will find sales slipping in 3 years, so management must be an entrepreneurial style
• Not many layers between CEO and customer
• small medium companies
• More than 95% of companies had fewer than 25M shares during their greatest period of eps improvement.  Avg was 11.8M and median was 4.6M between 1970 and 1982
• 3 to 1 and 5 to 1 stock splits after huge run ups make institutions sell (this doesn't seem relevant)
• Comapanies buying their stock in the open market
• Reducing debt to equity over last 2 to 3 years
• Small cap with less liquidity and no institutional sponsorship / ownership should be avoided.
• Trading volume should be light on corrections and increase significantly on rallies (50% to 100% more)

Ch 5 'L' Leader or Laggard

• Most people buy stocks they are familiar and comfortable with, like an old friend.  These will be the slowpokes rather than the leaders in the stock market.
• Buy the leading security in the industry you want to get in among the 2 or 3 best in a group
• Relative strength > 70 mean it outperformed 70% of the stocks in a comparison group over the last 6 - 12 months
• Avg for best performing equitites between 1953 and 1993 rated 87 before major increase began.
• Investors Business Daily has these numbers
• Look for charts in a bull flag or trading range and buy near the top of the range, but not more than 5 - 10% out of the range
• ...this doesn't seem like a good idea
• Once a general market decline is over, the stocks that bounce back to new highs first will generally be the leaders.

Ch. 6 'I' Institutional Sponsorship goes a long way

• At least 3 - 10 mutual fund sponsors, corporate pension funds, insurance companies, large investment counselors, hedge funds, bank trust dept, education institutions.  
• Certain mutual funds are better than others, so these will help define your quality of sponsorship
• Over owned by institutions may mean the largest moves are over

Ch. 7 'M' Market Direction

• Learn to interpret daily price and volume chart of general market averages.  You want to be on the correct side of the trend of the market, or 3 of your 4 positions will lose money.
• Market top
• General market tops are later than individual stock tops
• poor market rallies and rally failures in the SPX will occur
• Discount Rate
• When it is successively raised 3 times usually marks beginning of recession, when it is lowered usually signal end of bear market
• Wait for adam eve bottom
• Stages of stock market
• Economic indicators bottom AFTER the stock market, thus are a poor choice for stock market returns
• Big money is in the 1st 2 years.  After this expect occasionally 8% to 15% drops
• Railroad equipment, machinery, and other capital good industries are late moves in the business / stock market cycle
• Bull markets begin when institutional cash positions are higher than normal and end when cash positions are lower than normal

Ch. 9 When to Sell if your selection / timing is wrong

• After each qtr focus on the relative returns of each investment in your portfolio, not the price you paid for it.
• When you buy a stock if it is down 7 - 8% from your purchase price you should cut your loss.  However dont sell your winners if they are down 7 to 8% from their highs.  You must give your winners room to run.
• Don't avg down, don't worry about how many potential "turkey's" you had.  Your "red dress" has now turned into a "yellow one".  Get rid of that "yellow dress" and go find the "red dress"
• Self confidence
• holding losers makes you less confident.  If you cut your losses quickly and with discipline, you make the hardest decisions without wavering.
• There are no good stocks, they are all bad - unless they go up

Ch. 10 When to sell and take your profit

• Most good investors / hedge fund managers sell on the way up.  They dont buy at the low and sell at the top
• Jesse Livermore
• Pyramid and buy more as it goes up.  You want to make a lot of money when you're right, and cut your loss quickly when wrong
• Revised profit plan
• sell 20% profits (except with the most power of all stocks.  If it goes up 20% in < 8 weeks, then hold at least 8 weeks.  If it is still very strong, you will want to hold for 6 months)...Take your 8% loss
• buy exactly at the breakout pivot buy point, do not pyramid 5% beyond the buy point
• Selling pointers
• Buy at the right time.  This will solve half your problems
• Buy off a proper base structure, do not chase or pyramid when the price is too extended past your buy point.  You will be able to sit through most corrections
• Beware of big block selling.  The best stocks can have sharp selloffs for a few days or a week.  You shouldn't get shaken out in a normal pullback
• If the price is extended from a proper base, its price closes for a larger increase than on any previous up days, watch out! this climax is at or very close to the peak
• Ultimate top may occur on the heaviest volume day
• Big investors like to sell on big run ups when there is liquidity
• new highs on low volume means there is temporarily no demand for that level and selling may soon overcome
• after and advance, heavy volume w/o further upside price movement means distribution
• Look for clear reversal days (low at the previous days low after an up day on several days.)
• Sell if a stock breaks badly
• Consider selling  a stock if it takes off for a good advance for several weeks and then completely retraces the advance
• When qtrly eps increase slowly or decline for 2 consecutive qtrs, in most cases sell
• Consider selling if there is no confirming strength by another important member of the same group
• If a stock declines 8% from its peak, check if it is just a normal pullback.  If it declines 12% to 15%, you may want to sell
• If a stock has made an extended advance, and suddenly makes its greatest 1 day drop since the beginning of the move, consider selling if confirmed by other signals
• When you see heavy selling near the top, the next recovery will either follow through on weak volume, show poor price recovery, or last a short number of days.  Sell on the 2nd or 3rd day of the poor rally.  It will be the last good chance to sell
• Sell a stock if it closes the end of the week below major lon term uptrend line or breaks key support on overwhelming volume
• Number of up days vs down will change will change after stock starts down
• Wait for 2nd confirmation of major changes to market avgs.  Don't buy back stocks you just sold because they are cheaper
• Learn you mistakes by plotting past trades on charts
• Sell quickly before it becomes completely clear a stock should be sold.  Selling after an obvious support level break could be a poor decision.
• In a few cases you should sell a the trend channel line overshoot
• Sell when your stock makes a new high in price of it's 3rd of 4th stage
• Sell on new highs off a wide and loose erratic chart price formation
• When to be patient
• Have a line on ur chart below your buy point where you must sell if price is touched.  Raise this as the prices move below the low of the 1st normal correction.  Don't move too close because any weakness will stop you out.  If your stock increases 15% after purchase, move the sell line up to less than 5% below pivot purchase
• Objective is to buy the best stock with the best eps at exactly the right time and hold until you've been proven right or wrong.  Give 13 weeks after your first purchase before you conclude that it was a faulty selection (if not stopped out first)
• Any stock up 20% should not be allowed to drop into a loss.
• Always pay attention to the general market.  If the markets are topping, most breakouts will fail
• Major advances take time to complete.  Dont take profits during the 1st 8 weeks unless there is serious trouble or there is a rapid run up on a split.  If the stock shows 20% gain in 4 or 5 weeks, it is capable of a 100% to 200% move.  Only go for these long term moves after you are up for the year
• Try to hold through the 1st correction if you already have a profit
• Investors who can be right and sit tight are uncommon.  It takes time for a stock to make a  large gain

Ch 11 - Diversify, Invest for Long Pull, Margin, Short

• Portfolio > 3M should have 6 to 7 stocks.  Most people should have 4 to 5.
• No well run portfolio should have losses carried for more than 6 months
• Use margin after you have experience and you're young and still working.
• Margin should never be 100% all the time, you must carefully choose when to use margin
• Never add cash to meet margin call.  Sell the position
• Real Estate - buy it at the right time
• Dont buy in:
• Area that is not growing or deteriorating
• At inflated prices after several boom  years and just before a severe economic setback in the economy or geographic area where the real estate is (major industry layoffs or closing of a plant).  
• Mortgage is greater than the rent
• Frequent natural disasters

Ch 15 Patterns

• Cup and Handle
• 7 to 65 weeks, peak to low point is 12% - 33%
• Shouldn't correct more than 2.5x the general market
• Handle is 1 to 2 weeks and has a price shakeout, volume should be very low on the pullback phase of the handle
• Should consolidate above 200dMA
• Handles that don't properly shakeout (10% - 15%) are prone to failure
• Pivot Point
• Line of least resistance should be broken with volume at least 50% > normal.
• If you try to buy before this point, the stock will never get to the buy point.  If you buy 5 - 10% after you are too late
• Objective is to buy a the right time before the move, not the cheapest price
• Not necessarily the old high, could be a trendline from the old high
• Double Bottoms
• Likes when 2nd bottom is lower than 1st to get a shakeout
• Flat Base
• Usually after a run up from cup w/ handle, saucer, or double bottom.  Moves sideways for 6 - 7 weeks and does not correct more than 10% - 15%.
• Tight Flag
• Occurs after 100% move in a short period of time
• Corrects sideways w/ no more than 10% - 20% decline.
• Only occurs a couple times / year
• Overhead supply
• After a run up and significant pullback there is now overhead supply.  When the stock moves up again, you have to be able to tell where the overhead supply is using the charts

Ch. 16 - How to make money reading financial pages

• Investors Business Daily 'New America' Articles show new companies
• Find stocks in the top 80% of all performers
• Look for large volume flowing into stocks
• Review leading industries.  S&P classificiations of industries is not correct, you should use revere

Ch 18 - picking the best industry groups / subgroups / sectors

• There are many more industry sub groups that are actually related than those categorized by S&P.  You should use these sub groups to find the performance rather than the industry group.
• Only pick industries of the future
• A stock's weakness can spill over to the rest of the group, so be aware
• especially the best stock in the sector
• avoid buying stocks unless there is one other important stock in the same group that shows strength and attractiveness
• this doesn't apply to companies that are completely unique (he gives Disney as an example)
• 
  
• Follow on stocks
• If oil prices rise, oil stocks go up, but so do oil service stocks.
• When new efficient jet aircraft took off, airline stocks did well.  So did hotel stocks.
• Cousin Theory
• Suppliers of the main group will do well
• Boeing sold new jet lines, and its Monogram (sold toilets for airplanes) did well
• Fleetwood (RVs) helped Textone because it supplied vinyl clad paneling and cabinets
• Defensive stock cues
• If you see increased buying of defensive stocks after a couple years of bull market, it may indicate a near top.
• Gold, Silver, Tobacco, Foods, Grocery, Electric / Telephone Utilities
• Prolonged weakness in the Utility Average could also forecast increasing interest rates and bear market ahead
• Look at $spx, $util, $tran in stock charts
• Stocks require a wall of worry, doubt, and disbelief to climb
• Generally masses are wrong, so are investment managers
• Stock market is about 8 to 9 months ahead of economic indicators
• Fed, Tax Policy, and Interest rates are most important
• 
  

Ch 20 - Most Common Mistakes

• Most investors do not use a good selection criteria
• Miserable results will follow buying on the way down in price
• Even Worse is to avg down your buying than average up
• Low priced stocks (< $10)are low because they are inferior in the past or something wrong happened recently
• 1st time speculators want to make a killing too fast without doing the necessary study and preparation
• Don't buy on tips, rumors, stories, or advisory service recommendations.  People are willing to risk their money on what someone else says instead of knowing for sure what they are doing themselves.  
• Investors buy 2nd rate stocks because of dividends or low P/E ratios.  Dividends are not as important as EPS.  Low P/E is most likely because it is inferior
• People buy company names they are familiar with.  Many of the best stocks will be newer names you won't know well but could and should know if you do a little studying / research
• Most people don't know anything about the market, so their advice is probably worthless
• 98% of people are afraid to buy a stock that is beginning to go into new high ground, pricewise.  It just seems too high to them.
• The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable.  They could get out cheaply, but being emotionally involved and human, they keep waiting hoping until their loss gets much bigger and costs them dearly.
• Investors take profits too easily and hold their losers, they exact opposite of correct investment procedure
• Investors worry too much about taxes and commissions.  Key objective is to make a profit.
• Dont focus on short term options.  Don't sell naked options.  Focus on longer-term options
• Just use market orders, you are going for large gains not 1/8 and 1/4 of a point
• Most investors who are unable to buy or sell have no plan because they do not know what they are doing.  You need a plan, a set of principles
• Most investors cannot look at stocks objectively.  They have favorites, are always hoping, have personal opinions rather than paying attention to the opinion of the marketplace
• Investors are influenced by things that are not crucial - splits, increased dividends, news announcements, advisory recommendations

Parting Advice - Have courage, be positive, and don't even give up.  Anything is possible with hard work.  It can be done and your own determination to succeed is the most important element.

pg.181

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

How to piggyback on institutional buying:

Phase One  - apply my “Permission to Buy” filters to the broad market indexes.  If I get a green light there continue;
Phase Two - ascertain which of the nine S&P sectors is outperforming the market.  
Phase Three  - focus on the top industries that comprise the leading sector.  Once I have identified the top two industries, 
Phase Four -  identify the individual stocks that are the leaders within those industries.  These are the equities that institutional money managers have identified as “great ideas” and where they are committing their investable dollars.

You Can Be A Stock Market Genius - Joel Greenblat
Chp 1.

• Hunt For Bargains in places people are not looking.  Lower liquidity, smaller cap stocks
• Only invest in those situations where you are knowledgeable and confident, and only those situations. ( similar to Buffett quote of 'swing at only one of twenty pitches').  Stick to your ping-pong 'net serves'
• Look at downside risk rather than upside potential.  Upside will take care of itself, but the way to create an attractive risk/reward situation is to limit downside risk severely by investing in situations that have a large margin of safety.
• Relying on objective measures like a company's book value and historical earnings to determine value may help eliminate some of the emotional and institutional biases likely to be found in more future-based valuation methods.  Buffett adds to this that investing in fundamentally good businesses, as opposed to stocks priced cheaply in statistical terms is probably why Buffett has become Graham's most successful disciple.
• Buffett focuses on well-managed companies, that have a strong franchise, brand name, or market niche.
• His investments are concentrated in businesses he understands well and possess attractive underlying economic (meaning they generate lots of cash) and competitive characteristics.
• Finding these stocks is still a hard task, because many things can go wrong and Peter Lynch of Buffett are exceptionally good at making tough calls
• Corporate events offer another area where you can make money:
• Spinoffs, mergers, restructurings, rights offerings, bankruptcies, liquidations, asset sales, distributions

Ch 2.

• If pre-select investment areas that put you ahead of the game before you start, the most important work is already done.  You'll be picking and choosing from an already outstanding menu, and your choices are less likely to result in indigestion
• Spinoffs:
• Stocks of spinoff companies, and shares of the parent companies significantly and consistently outperform market averages
• Spinoffs in SP500 companies often will be subject to a huge amount of indiscriminate selling because the funds that own the new companies are too large to be concerned with the new smaller company
• The largest stock gains occurred in the 2nd year after the spinoff
• Reasons to own a spinoff:
1. Institutions don't want it (and the reasons don't involve investment merits)
• Host Mariott would be spun off with huge debt and unpopular real-estate assets(hotel market was terrible at the time).  Because the situation looked terrible, most people would be discouraged from additional research on the new stock
• Host Mariott would be 15% of the 2B market cap of its parent company, which would make it too small for most of the original shareholders to want to own
2. Insiders want it
• Are the managers of the new spinoff incentivized along the same lines as shareholders
• Will they receive a large part of their potential compensation in stock, restricted stock, or options?  Is there a plan for them to acquire more?  When all public documents have been filed, look in this area first
• Host Mariott new CEO would be Stephen Bollenbach, who was the architect of the spinoff and had successfully helped Donald Trump turn around his failng hotel / gambling businesses
3. A previously Hidden investment opportunity is created or revealed
• Typically a great business or statistically cheap stock is uncovered as a result of of the spinoff.  In the Host case, tremendous leverage was the result.
• The tremendous leverage would magnify returns on equity if it turned out to be more attractive than it initially appeared.
• Digging for research involves reading multi-hundred page corporate documents and mountains of SEC filings, like Form 10
1. Identify where you think you will find opportunity in the documents
2. After you've identified a spot that has opportunity, then start digging
3. It takes between 6 - 9 months after the initial disclosure of a spinoff to occur.  In the Host case it took over 1 year
• Form 10
• Look through table of contents to identify areas you actually want to review
• Pro forma statements - show what the company would be making if it was a separate entity
• Economic interests of insiders
• 'Business of the company' - Strattec 10F 'based upon current product commitments, the company believes ford will become its second-largest customer during fiscal 1996'  The companies statements did not include any business related to Ford.  Since the current 2nd largest customer did about 16% of business, Ford would be responsible for about 16% more.
• A spinoff that involves a parent company divesting a highly regulated industry may provide a prelude to a takeover because it makes the target a more attractive takeover
• Partial Spinoff
• Only sell a partial amount of a division
• If shares are distributed to current parent company shareholders, it is generally better than an public offering
• By knowing the parent company market cap, and after the spinoff is complete, the child company market cap, you can figure out what the rest of the businesses in the parent company are worth
• After analyzing the parent company there may be opportunities to purchase the existing business cheaply.  
• Sears needed to spinoff AllState and Dean Witter.  After their spinoff, Sears $27B in sales was worth only $1.5B in market cap
• Right's offering
• Gives you the right to buy shares in a newly spun off company, usually when the parent company needs additional capital
• Look for oversubscription privileges and the motives of the insiders
• 
  

Ch 4. - Risk Arbitrage and Merger securities

• Generally involves buying stock after a deal is announced
• Company A announces it will buy B (currently at $25) for $40.  Company B then jumps to $38.
• Risks are the deal doesn't not complete and the stock price returns to $25, or lower or that the deal takes a very long time to complete (typically deals close in 1 to 18 months)
• This may happen because of regulatory issues, financing, extraordinary change in a company's business, discoveries during the due diligence process, or management personality problems
• Ex: HBJ goes to buy Cypress Garden
• HBJ @ 51.87, CG at $4.50, it then moves to $7.50
• The deal is .16 shares of HBJ for CG which can be locked in at $8.30 by shorting HBJ and buying CG in the appropriate amounts
• The deal makes sense from a business perspective
• No financing since it's all stock
• Very small so there are no regulatory issues
• The only vote required was by CG shareholders
• Author believes competition is too high now in Risk Arb.  Spreads are tighter and too many things need to go right.  A bad streak of luck or macro event will destroy a portfolio.
• Merger Securities are actually very lucrative
• Instead of stock or cash, bonds, preferred stock, warrants, and rights are used as sweeteners
• As a general rule, nobody wants these securities and they typically are undervalued as a result
• Ex: Super Rite Foods
• Management wanted to take the company private but they ended up getting a competing bid, so they had to include some other things
• The winning bid ended being:
•  $25.25 in cash, 
• $2 face-amount new issued preferred stock yielding 15% annually(this was a small amount and would probably be disregarded by the current investors)
• warrants to buy 10% interest in the new company (warrant is right to buy stock at a specified price) set at $0. 1 warrant for every 21.44 shares which was worth between 25c and 50c / share. (since this was also a tiny amount it would be disregarded as well).  They ended up trading for $6
• According to the projections, in 3 years the new entity would be earning $5 / share in free cash flow.  So a modest projection would be each new share being worth $50.
• Super Rite traded at $25.5 to $26 before the merger closed, which would equate to 75c for the preferred stock and warrants, but it might return to $17 if the deal collapsed.  In the end, buying preferred stock and warrants in the open market seemed like the best idea
• Warrants were worth $40 in 2 years, and preferred stock, which sold for 55% of face value went up to 100%
• Viacom / Paramount
• Also many merger securities
• There were CVR (essentially put option w/ capped payout) which guaranteed $48 selling price if Viacom stock > $25.  
• 5 Year warrants at $70, Viacom current at $32.  Entitled the holder to 1 share of Viacom stock for $70 cash or $70 face-value worth of subordinated debt.  This debt was trading at 60% of face value = $42.  So, the 5 year warrant could be purchased and then be paid with the subordinated debt, which means you could buy a option at $42 good for 5 years.

Ch. 5 - Bankruptcy

• Common stock is almost always a terrible investment in bankrupt companies
• Bonds
• All types of bonds
• Bank Debt
• Trade claims - claims from the companies suppliers who didn't get paid for goods, materials, or services provided before the bankruptcy
• Typically these holders get securities in the new company after it emerges from bankruptcy, bonds or common stock
• The opportunity comes from analyzing the new common stock by reading the disclosure statement.  This filing is made with the bankruptcy court and can be obtained directly from the company or SEC filing 'registration statement'.  Disclosure statement is better because it provides management's future projections and past complications.
• A study showed that these new distributed stocks outperformed the market by 20% during the 1st 200 days of trading.  However, it was the stocks with the lowest market value that performed the best
• Only buy good businesses - strong market niche, brand name, franchise or industry position
• Buy companies that were overleveraged due to a takeover or LBO
• Product liability lawsuits from a discontinued or isolated product line
• Slumming - cheap compared to similar companies because analyst dont' cover it, nobody knows about it, or bad stigma
• Ex: Charter Medical still pretty leveraged after bankruptcy but management were trying new things to make up for lost revenue.  It ended up working and stock tripled, but then didn't go any higher.
• Knowing when to sell:
• Trade the bad ones, invest in the good ones.  
• If you bought because of a corporate event, once it is widely known, it is time to sell.  
• If the business is still difficult, but lots of analysts start speaking positively of the stock, sell it.
• Corporate Restructuring: Selling or shutting an entire division that is materially relevant to the entire company
• Companies close or sell major division to stanch losses, pay off debt, or focus on more promising business lines
• Often times, the division being sold was masking the company's other businesses.
• Two ways to profit, 1. after it is announced, often there is time to see what will happen.  2. Finding a company ripe for restructering

Ch 6

• Recapitalization
• company repurchases a large portion of common stock in exchange for cash and/or securities
• The left over stock is called a stub stock and many have returned 5x to 10x
• Ex: $36 dollar stock, company recaps by giving $30 in bonds to common stock holders that carry 10% interest.  Earnings before were $3.  Pre-tax earnings were $5.  After recap, earnings are still $5, but $3 is paid out as interest.  Remaining $2 is taxed at 40% = .80c and remaining $1.20 is distributed to shareholders.  Stock was trading at P/E of 12 pre recap, and will trade at about 8 after.
• Assumed growth of 20% before recap.  Growth of 20% in eps = $6.  EPS = $1.80 * P/E 8 = $14 from about $9.60
• Recaps rarely happen now, they were more popular in the 80s.  However, you can emulate the leverage by buying LEAPS and warrants
• Options market tends to be undervalued during these special situation events.
• During a spinoff, a call option can be split into 1 share of each of the two companies.  Since after a spinoff shares generally rise, this is not always taken into account with options models.

Ch 7 

• Look in the WSJ, IBD, Outsanding Investors Digest(LEAPS candidates), Turnaround LEtter(orphan stocks from bankruptcy and restructuring stocks), value oriented funds (look up their picks that are related to special situations)
• SEC filings for the most interesting stocks from above: 10K, 10Q, Schedule 14A (executive stock ownership, sock options, overall compensation)
• Extraordinary Events filings:
• 8K - acquisition, asset sale, bankruptcy or change in control
• S1, S2, S3, S4 - S1 -> S3 are registration statements for companies issuing new securities, S4 is for securities being distributed through merger or bother business combinations, exchange offer, recapitalization, or restructuring.  S4 sometimes combined w/ a proxy statement where shareholder vote is required
• Form 10 - spinoff distribution
• Form 13D - owner of 5% or more must disclose holdings and their intentions regarding the stake is for investment purposes.  If the purpose is for exerting control or influence, this filing may be a sign of an extraordinary corporate change
• 13G is if institutional holder only is holding for investment purposes
• Schedule 14D-1 - tender offer statement.  provides useful background info on a proposed acquisition.  You can get these from the information agent listed on the ad announcing the offer.
• Schedule 13E-3, 13E-4 -E-3 is a going private transaction, E-4 is the tender offer statement when a company is buying back its own shares and disclosures are more extensive than usual, so read these carefully.